BUSINE 


COLEMAN  H.BUSi 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 
GIFT  OF 


Harold  E.   Ives 


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APPLIED  BUSINESS  LAW 


BY 
COLEMAN  HALL  BUSH,  LL.M.. 

OF  THE  CAUVORNIA  BAB 


NEW  YORK 

HENRY  HOLT  AND  COMPANY 

1920 


COPTBIOBT,   1920 
BY 

HENRY  HOLT  AND  COMPANY 


PREFACE 

Business  laws  are  rules  that  govern  business  transac- 
tions. These  rules  must  be  so  clearly  presented  that  the 
learner  will  be  able  to  apply  them  in  his  ordinary  daily 
affairs. 

The  method  here  used  has  the  merit  of  being  logical 

and  at  the  same  time  interesting  and  practical.     First, 

the  principles;  second,  their  relation  to  the  formation  of 

?*■  contracts;  third,  their  application  to  actual  cases  as  de- 

*»■  cided  by  the  highest  courts. 

*2      The  learner  should  yoke  and  rivet  every  principle  he 
^  studies  to  the  actual  facts  of  his  own  experience,  other- 
"^  wise  he  cannot  meet  the  test  of  application,  for  applica- 
tion is  the  final  test. 

Ck>LEMAN  Hall  Bush. 
Polytechnic  High  School, 
Riverside,  California, 
January  27, 1919. 


PURPOSE 

We  learn  to  do  by  doing — that  is  an  axiom.  We  learn 
to  write  business  papers  by  writing  such  papers  as  are 
based  on  the  facts  of  our  own  experience.  Ability  to  do 
this  comes  from  inteUigent  practice  under  wise  guidance. 

One  may  get  practice,  to  some  extent,  by  serving  an 
apprenticeship  in  a  business  office;  but  this  course  is  open 
to  few,  it  gives  inadequate  experience  except  in  a  narrow 
routine,  and  it  is  entirely  too  slow  to  be  justified  by 
results. 

Hence,  the  purpose  of  this  book  is  to  eliminate  the  long 
term  of  apprenticeship,  to  give  a  wide  range  of  experience 
to  all  who  seek  it,  by  presenting  material,  both  law  and 
facts,  for  application  in  constructive  work.  If  the  guid- 
ance given  is  faithfully  followed,  progress  is  bound  to  re- 
sult. 

Coleman  Hall  Bush. 
Polytechnic  High  School, 
Riverside,  California, 
January  27, 1919. 


CONTENTS 

PART  I 
FUNDAMENTAL  PRINCIPLES 

CHAPTER  PAGE 

I.  Essentials  op  Contracts 1-26 

Formation  of  contracts,  etc. 

II.  Agency 27-34 

Authority  and  duties  of  agent. 

III.  Service 35-39 

Duties  of  employer,  employee. 

IV.  Deposits,  Loans,  and  Hiring  op  Things 40-50 

Warehousemen,  landlord  and  tenant. 

V.  Carriage 51-60 

Common  carrier,  bills  of  lading. 

VI.  Sales  op  Goods 61-67 

Statute  of  Frauds,  warranty. 

VII.  Partnership 68-76 

Partnership  property,  liability. 

VIII.  Insurance 77-88 

Fire,  marine,  and  life  insurance. 

DC.  Negotiable  Paper 8&-102 

Essentials  of  negotiable  paper .... 

X.  Real  Property 103-109 

Title  to  real  property,  mortgages. 

XI.  Business  Corporations 110-116 

Powers  of  dissolution. 

vii 


viii  CONTENTS 

PART  II 
HOW  TO  WRITE  BUSINESS  PAPERS 

GROUP  PAGE 

I.  Simple  Contracts '. 119-156 

Essentials  of  contracts. 
Parts  of  written  contracts. 
Exercises,  analyses,  constructive  work  in  writing 
contracts. 

II.  Articles  op  Agreement 157-174 

Articles  of  co-partnership. 
Articles  of  association. 
Articles  of  incorporation. 

III.  Negotiable  Contracts 175-201 

Essentials  and  non-essentials. 

Notes  and  acceptances. 

Bills  of  exchange,  checks,  drafts. 

rV.  Contracts  Concerning  Land 202-221 

Deeds  of  conveyance. 
Mortgage  and  trust  deeds. 
Leases  of  real  property. 

V.  Miscellaneous  Forms 222-235 

Agent's  authority,  general. 
Power  of  attorney,  proxy. 
Bill  of  sale,  special  notices. 

Index 239-244 


PART  I 
FUNDAMENTAL   PRINCIPLES 


CHAPTER  I 
ESSENTIALS  OF  CONTRACTS 

1.  Introductory.  Business  law  in  some  way  touches 
every  human  interest  that  has  to  do  with  material  things, 
or  relates  to  any  service  or  credit  concerning  material 
things.  It  most  intimately  relates  to  matters  of  property, 
of  credit,  or  of  service,  and  to  the  persons  involved  in 
business  transactions.  For  this  reason  a  knowledge  of 
business  law  is  not  only  valuable  but  it  is  absolutely  es- 
sential to  a  clear  understanding  of  one's  rights  and  obli- 
gations in  business. 

Business  is  the  relation  of  persons  to  property  values  as 
affected  by  contracts;  it  embraces  not  only  trading,  buying  and 
selling,  but  every  form  of  activity  or  calling  by  means  of  which 
persons  make  a  hving,  according  to  the  rules  of  law. 

Law  is  a  rule  of  action,  or  of  conduct;  business  laws  are 
rules  of  business  conduct,  as  applied  to  business  transactions. 

Business  transactions  are  contracts  for  the  purchase  or 
sale  of  property,  service,  or  credits.  They  are  the  units  of  busi- 
ness, of  business  law,  of  accounting  and  of  commerce. 

2.  Obligations.  An  obligation  is  a  duty  imposed  by 
law  by  which  a  person  is  bound  to  do,  or  not  to  do,  a  cer- 
tain thing.  Obligations  arise  either  (1)  by  contract  of 
the  parties,  or  (2)  by  operation  of  the  law.  The  chief  ob- 
ligation arising  by  operation  of  law  is  that  every  person  is 
boimd,  without  contract,  to  keep  from  injuring  the  person 


4  APPLIED  BUSINESS  LAW 

or  property  of  another,  or  from  infringing  upon  any  of 
his  rights  (see  sec.  84,  post). 

Examples:  (1)  A  receives  goods  from  0  and  uses  them  in 
his  business,  promising  to  pay  O  an  agreed  price  for  them.  A's 
obhgation  to  pay  arises  by  contract,  or  mutual  agreement  of 
the  parties. 

(2)  X  takes  goods  belonging  to  O,  without  the  owner's  knowl- 
edge or  consent,  and  uses  them  in  his  business.  The  law  im- 
poses an  obhgation  on  X  to  pay  O  the  reasonable  value  of  the 
goods,  and  it  may  also  impose  some  form  of  punishment  for  the 
wrongful  taking  of  the  property  of  another.  In  this  event,  the 
wrongful  taking  would  be  a  crime  and  governed  by  the  rules  of 
criminal  law. 

3.  Contracts.  Contracts  as  here  understood  are  agree- 
ments relating  to  matters  of  business;  that  is,  each  con- 
tract is  an  agreement  to  do  or  not  to  do  a  certain  act,  or 
series  of  acts. 

Contracts  are  classified  as  (a)  valid,  (b)  voidable,  or 
(c)  void.  A  vaHd  contract  is  one  that  is  lawful  and  bind- 
ing upon  the  parties  to  the  agreement.  A  voidable  con- 
tract is  one  that  is  lawful  but  the  obhgation  imposed  by 
it  may  be  avoided  by  one  of  the  parties  if  he  wishes  to 
avoid  it.  A  void  contract  is  one  without  legal  force  or 
effect  (sec.  5,  post). 

Examples:  (1)  X  and  Y  are  adults  competent  to  make  con- 
tracts. X  offers  to  sell  his  trotting  horse,  Rhus-tox,  to  Y  for 
$12,000,  delivery  and  payment  to  be  made  ten  days  later  at  Y's 
place.  Y  accepts  this  offer,  the  agreement  being  in  writing, 
signed  by  the  parties.  This  is  a  valid  contract,  binding  both 
parties. 

(2)  A  is  an  adult  and  M  is  a  minor.  A  offers  to  sell  his  horse, 
Luxor,  to  M  for  $3000,  dehvery  and  payment  to  be  made  ten 


ESSENTIALS  OF  CONTRACTS  5 

days  later  at  A's  place.  M  accepts  the  offer,  the  agreement 
being  in  writing,  signed  by  the  parties.  This  is  a  voidable  con- 
tract. It  is  binding  on  A,  but  it  may  be  avoided  by  the  minor, 
M,  if  he  wishes  to  avoid  it,  but  the  right  to  avoid  is  personal  to 
the  minor. 

(3)  M  is  a  minor  having  land  situated  in  an  adjoining  state. 
He  gives  X  a  written  authority  under  seal  to  act  as  his  agent  to 
sell  and  convey  title  to  the  land  to  N.  X  sells  the  land  to  N 
and  executes  a  deed  for  it.  Such  contracts  and  conveyances  are 
held  to  be  absolutely  void,  and  not  merely  voidable. 

4.  Essentials  of  contract.  The  essential  elements  of 
a  valid  contract  are:  (1)  Competent  parties,  (2)  their 
agreement,  (3)  free  from  fraud,  mistake,  or  duress,  (4) 
based  upon  sufficient  cause,  price,  or  consideration, 
(5)  to  accomplish  a  lawful  purpose,  and  (6)  in  some 
cases  the  agreement  to  be  in  writing  (sees.  5,  204,  et  seq.). 

5.  Formation  of  contracts.  The  first  essential  in  the 
formation  of  contracts  is  to  have  competent  parties,  that 
is,  persons  who  have  lawful  capacity  to  make  binding  con- 
tracts. All  persons  are  capable  of  making  valid  contracts 
except  minors,  persons  of  unsound  mind,  persons  deprived 
of  civil  rights,  and  alien  enemies. 

(a)  Minors  are  persons  under  twenty-one  years  of  age, 
except  in  those  states  which  provide  by  statute  that  females  are 
adults  at  eighteen.  The  contracts  of  minors  are  voidable,  ex- 
cept contracts  to  pay  the  reasonable  value  of  things  necessary 
for  the  support  of  the  minor,  or  for  the  support  of  his  family. 

Necessaries  are  those  things  which  are  reasonably  needed 
by  the  minor  and  which  are  reasonably  suited  to  a  person  of  his 
station  in  Ufe,  or  to  the  needs  of  his  family.  Contracts  for  neces- 
saries must  be  made  when  the  minor  is  not  under  the  care  of  a 
parent  or  of  a  guardian  able  to  provide  for  him. 

A  minor  cannot  give  a  written  power  or  authority  for  an 


e  APPLIED  BUSINESS  LAW 

agent  to  act  for  him,  nor  can  he,  under  the  age  of  eighteen,  make 
a  contract  relating  to  real  property  or  to  personal  property  not 
in  his  immediate  possession. 

A  minor  may  avoid  his  contracts,  other  than  those  for  nec- 
essaries, if  made  while  he  is  under  the  age  of  eighteen,  and  his 
avoidance  may  be  either  before  he  becomes  of  age  or  within  a 
reasonable  time  afterward.  As  a  rule,  where  the  contract  was 
made  when  the  minor  was  over  eighteen  years  of  age,  he  must 
restore  the  consideration,  or  price,  before  he  can  disaffirm. 

(b)  Persons  non  compos  mentis  or  entirely  without  under- 
standing have  no  power  to  make  contracts  of  any  kind,  but 
they  are  liable  for  the  reasonable  value  of  necessaries  furnished 
for  their  support,  or  the  support  of  those  dependent  upon  them. 
Idiots,  lunatics,  and  grossly  intoxicated  persons  come  within 
this  class. 

(c)  Alien  enemies  are  the  subjects  of  foreign  powers  with 
which  our  country  is  at  war.  Contracts  between  citizens  of 
our  country  and  alien  enemies  are,  as  a  rule,  absolutely  void, 
on  the  ground  of  pubUc  policy,  since  to  permit  such  contracts 
would  be  to  place  considerations  of  private  gain  above  the  duties 
of  patriotism. 

Valid  contracts  entered  into  before  war  was  declared  may  be 
carried  out  after  peace  is  restored,  if  mutually  agreeable,  and 
if  a  breach  has  occurred  before  the  beginning  of  hostilities,  the 
remedy  revives  upon  the  return  of  peace. 

The  second  essential  in  the  formation  of  a  valid  con- 
tract is  the  agreement  of  the  parties  to  the  contract. 
Agreement  is  the  mutual  consent  of  the  parties  to  be 
bound  by  a  contract.  They  must  agree  to  the  same  thing 
and  in  the  same  sense,  and  the  consent  must  be  free, 
mutual,  and  communicated  by  each  to  the  other.  Con- 
sent which  is  not  free  renders  the  contract  voidable  at 
the  will  of  the  party  who  acted  under  compulsion. 

The  third  essential  is  that  the  agreement  must  be  free 
from  fraud,  mistake,  or  duress,  since  it  is  held  that  con- 


ESSENTIALS  OF  CONTRACTS  7 

sent  is  not  real  when  it  is  obtained  through  mistake, 
fraud,  duress,  or  undue  influence. 

(a)  Mistakes  are  of  fact  and  of  law.  Mistakes  of  fact 
pertain  to  matters  of  fact  material  to  the  contract.  Mistakes 
as  to  the  existence  or  identity  of  the  subject-matter  of  the  con- 
tract, or  the  identity  of  the  party  dealt  with,  will  generally 
render  the  contract  voidable.  Mistakes  of  law  pertain  to  mat- 
ters of  law  which  relate  to  the  contract.  As  a  rule,  mistakes  of 
law  do  not  excuse  one  from  liability  on  his  contracts. 

(b)  Fraud  pertains  to  past  or  present  matters  of  fact 
material  to  a  contract  and  which  are  falsely  represented  so  that 
one  party  to  the  contract  is  imposed  upon.  The  elements  of 
fraud  are:  A  false  representation,  or  concealment  amounting 
to  a  false  representation  in  its  effect;  guilty  knowledge,  or  such 
gross  carelessness  in  statement  as  to  amount  to  a  guilty  knowl- 
edge of  its  falsity;  intention  to  mislead  the  other  party;  and 
actually  misleading  him,  to  his  injury  or  damage.  The  effect 
of  fraud  is  to  render  the  contract  voidable  at  the  will  of  the 
injured  party. 

(c)  Duress  is  an  unlawful  constraint  imposed  on  a  person 
which  causes  him  to  do  some  act  against  his  will.  Duress  renders 
a  contract  voidable. 

(d)  Undue  influence  consists  in  taking  an  unfair  advan- 
tage of  another's  weakness  of  mind,  or  of  his  necessity  or  dis- 
tress, or  of  his  confidence.  In  every  such  case  the  contract  is 
voidable  at  the  election  of  the  injured  party. 

Ofifer  and  acceptance.  Agreement,  in  which  the 
consent  of  the  parties  to  the  contract  is  free,  mutual,  and 
communicated  by  each  to  the  other,  must  arise  in  some 
form  of  offer  and  acceptance.  These  are  governed  by 
the  following  rules: 

First,  the  parties  must  mean  to  make  a  contract  and 
to  undertake  its  obligations. 


8  APPLIED  BUSINESS  LAW 

Example:  A  holds  a  fake  auction  at  a  social  gathering.  He 
offers  a  watch  belonging  to  K,  which  is  worth  about  $10,  for 
sale  to  the  highest  bidder,  H  makes  a  bid  of  $300  which  is 
immediately  accepted  by  the  auctioneer,  A,  and  H  draws  a 
check  for  the  amount  and  receives  the  watch.  K,  upon  receipt 
of  the  check,  seeks  to  enforce  payment  for  the  amount. 

Held,  by  the  court,  that  since  the  entire  transaction  was  in- 
tended and  understood  as  a  joke  by  all  the  parties  to  it  and  that 
no  legal  obligation  was  intended,  none  was  imposed  (sec.  203, 
post). 

Second,  one  party  must  make  an  offer  which  is  to  be 
accepted,  or  make  a  request  which  is  to  be  acted  upon  by 
the  other. 

Example:  J,  without  any  request  from  the  owner,  assumes 
to  remove  a  stack  of  grain  from  a  field  and  thus  to  save  it  from 
destruction  by  fire.  Afterward  he  sues  the  owner,  B,  to  recover 
for  his  service.  It  was  held  there  was  no  contract  between  the 
parties  and  therefore  there  could  be  no  recovery  for  the  service' 
rendered. 

Third,  the  offer  or  request  must  be  communicated,  i.  e., 
the  party  who  seeks  to  accept  the  offer  or  to  act  upon  the 
request  must  have  knowledge  of  the  same  before  he  can 
accept  or  act  and  bind  the  other  party. 

Example:  A  crime  had  been  committed  in  a  certain  com- 
munity. Public  officials  offered  a  reward  for  information  that 
would  lead  to  the  arrest  and  conviction  of  the  guilty  party. 
Unknown  to  the  officials,  X  had  given  such  information  a  few 
days  before  the  reward  was  offered.  When  he  learned  of  the 
reward  he  brought  suit  to  recover  the  amount.  It  was  held 
there  could  be  no  recovery  since  there  could  be  no  consent  to 
that  of  which  the  party  had  never  heard. 


ESSENTIALS  OF  CONTRACTS  d 

Fourth,  the  offer  or  request  must  be  clear  and  the  ac- 
ceptance of  the  offer,  or  the  act  in  reliance  upon  the  re- 
quest, must  be  without  condition  or  qualification,  and 
must  accord  with  the  exact  terms  of  the  offer,  or  request. 

Example:  X  promised  his  niece  that  if  she  would  live  in  his 
home  and  act  as  his  housekeeper  he  would  give  her  "one  hun- 
dred acres  of  land."  The  offer  did  not  designate  any  particular 
land  or  indicate  its  location  or  value.  In  a  suit  it  was  held  there 
could  be  no  recovery  since  the  promise  was  void  because  of 
uncertainty. 

Fifth,  the  act  in  reliance  upon  the  request,  or  the  ac- 
ceptance, must  be  rendered  or  communicated  in  accord- 
ance with  the  terms  of  the  request  or  of  the  offer.  An 
offer  made  by  mail  impUedly  authorizes  an  acceptance 
by  the  same  agency,  unless  some  other  means  is  expressly 
designated,  and  the  acceptance  becomes  binding  the 
moment  it  is  mailed. 

Example:  X  posted  a  letter  accepting  an  offer  to  insure  his 
house  and  inclosed  a  check  to  pay  the  premium.  Before  the 
letter  of  acceptance  was  received  by  the  company  the  house 
burned.  In  an  action  to  recover  the  amount  of  the  policy  it 
was  held  that  the  company  was  liable,  and  that  the  contract 
was  completed  when  the  letter  of  acceptance  was  mailed. 

Sixth,  an  offer  or  request  may  be  changed  or  recalled 
at  any  time  before  it  is  accepted  or  acted  upon,  but  the 
change  or  revocation  must  be  communicated  to  the  other 
party  to  be  effective,  unless  it  is  caused  by  the  death  of 
the  offeror  or  the  expiration  of  the  time  limit  for  accepting 
the  offer. 

Example:  A  offered  to  sell  a  large  quantity  of  petroleum  to 


10  APPLIED  BUSINESS  LAW 

B  at  an  agreed  price.  The  offer  was  in  writing  and  provided 
that  it  should  be  open  for  sixty  days,  unless  sooner  accepted. 
The  writing  was  not  under  seal  and  no  consideration  was  paid 
for  keeping  the  offer  open.  The  price  of  oil  went  up  and  at  the 
end  of  fifty-seven  days  A  withdrew  the  offer.  On  the  fifty-ninth 
day  B  sent  a  written  acceptance  of  the  offer,  but  he  knew  of  the 
revocation  before  doing  this.  Under  the  circumstances  could 
A  withdraw  his  offer  before  the  expiration  of  the  time  limited 
in  the  offer? 

It  was  held  that  he  could,  but  the  notice  of  revocation  to  be 
effective  must  actually  come  home  to  the  attention  of  the  other 
party. 

The  fourth  essential  in  the  formation  of  a  contract  is 
the  presence  of  a  sufficient  consideration.  Consideration 
is  something  of  value  received  by  one  party  or  given  up 
by  the  other  as  a  price  or  inducement  for  the  promise  or 
obligation  in  a  contract.  The  consideration  must  be 
legal,  otherwise  the  contract  will  be  void. 

Contracts  under  seal  do  not  require  the  presence  of  con- 
sideration for  the  seal  is  said  to  import  a  consideration.  In 
those  states  which  have  abolished  all  distinction  between  sealed 
and  unsealed  instruments,  the  fact  that  a  contract  is  in  writing 
carries  a  presumption  that  consideration  was  given,  though  this 
presumption  may  be  overcome  by  evidence  to  the  contrary. 
In  the  case  of  negotiable  instruments  the  presumption  is  that 
consideration  was  given  for  them,  but  this  may  be  overcome  by 
evidence  that  no  consideration  was  given.  The  burden  of  show- 
ing a  want  of  consideration  in  the  case  of  written  contracts  lies 
with  the  party  seeking  to  avoid  it. 

The  fifth  essential  in  the  formation  of  a  contract  is 
that  it  must  be  for  some  lawful  object.  The  object  of  a 
contract  is  the  thing  or  things  agreed  to  be  done  or  not 


ESSENTIALS  OF  CONTRACTS  11 

to  be  done  by  the  parties  to  the  contract.  The  object 
must  be  lawful  and  possible  when  the  contract  is  made. 
If  a  contract  has  but  a  single  object  and  such  object  is 
unlawful,  whether  in  whole  or  in  part,  or  if  it  be  wholly 
impossible  of  perfonnance,  or  if  it  be  so  vaguely  expressed 
as  to  be  wholly  imascertainable,  the  entire  contract  is 
void;  but  if  the  contract  has  several  distinct  objects  of 
which  one  at  least  is  lawful,  and  one  at  least  is  unlawful, 
in  whole  or  in  part,  the  contract  is  void  as  to  the  latter 
and  valid  as  to  the  rest. 

In  general,  a  contract  is  unlawful  and  void  which  is:  (1)  Con- 
trary to  the  express  provisions  of  the  law;  (2)  contrary  to  the 
general  policy  of  the  law;  or  (3)  otherwise  contrary  to  good 
morals.  Contracts  to  exempt  one  from  liability  for  fraud  or 
willful  injury  to  the  person  or  property  of  another,  or  for  viola- 
tion of  law,  are  against  public  poUcy  and  void.  Contracts 
which  prevent  one  from  engaging  in  a  lawful  profession,  trade, 
or  business  of  any  kind  are  usually  void,  except  where  one  sells 
the  goodwill  of  a  business  he  may  agree  not  to  carry  on  a  similar 
or  competing  business  within  a  certain  locality  and  for  a  speci- 
fied time. 

In  addition  to  the  five  elements  already  considered  and 
which  are  required  in  the  formation  of  every  valid  con- 
tract, there  is  a  sixth  element  required  only  in  particular 
cases,  namely,  that  the  contract  be  in  writing  or  in  a 
particular  form.  Most  contracts  may  be  oral,  that  is, 
by  word  of  mouth;  a  few  are  expressly  required  by  law 
to  be  in  writing  (see  sec.  46,  post). 

The  Statute  of  Frauds,  so  called  because  it  was  intended 
to  prevent  fraud  and  perjury  in  proving  contracts  before  courts, 
provides  in  general  that  the  following  contracts  are  invalid 


12  APPLIED  BUSINESS  LAW 

unless  they,  or  some-note  or  memorandum  of  them,  are  in  writ- 
ing and  signed  or  subscribed  by  the  party  to  be  held  liable,  or 
by  his  agent: 

(1)  Contracts  which  by  their  terms  are  not  to  be  performed 
within  a  year  from  the  time  they  are  made. 

(2)  Contracts  to  answer  for  the  debt,  default,  or  failure  of 
another. 

(3)  Contracts  in  consideration  of  marriage  other  than  mutual 
promises  to  marry. 

(4)  Promises  of  an  executor  or  administrator  to  pay  out  of 
his  own  pocket  any  amount  or  amounts  due  from  the  estate  he 
is  administering. 

(5)  Contracts  for  the  sale  of  lands  or  any  interest  in  land, 
except  leases  for  less  than  a  year;  if  made  by  an  agent,  his  au- 
thority must  be  in  writing  or  the  contracts  will  be  illegal. 

(6)  Leases  for  a  longer  term  than  one  year. 

(7)  Contracts  employing  agents  or  brokers  to  buy  or  sell 
lands  or  any  interest  in  lands  for  compensation  or  commis- 
sion. 

(8)  Promises  which  by  their  terms  are  not  to  be  performed 
within  the  lifetime  of  the  promisor. 

(9)  Contracts  to  sell  personal  property  for  a  price  of  not  less 
than  fifty  dollars,  unless: 

(a)  The  buyer  accepts  and  receives  a  part  of  the  goods  or 
property  bought,  or 

(b)  Pays  at  the  time  some  part  of  the  purchase  money  (see 
sec.  46,  post). 

Reducing  a  contract  to  writing,  whether  the  law  requires  it 
to  be  in  writing  or  not,  has  the  effect  of  superseding  all  prior 
negotiations  and  agreements  concerning  the  same  matter,  and 
the  written  contract  takes  effect  when  it  is  delivered  to  the 
party  in  whose  favor  it  is  made,  or  to  his  agent.  ^ 

^  The  above  contains  the  chief  provisions  of  the  original  Statute 
of  Frauds  enacted  by  the  English  Parliament  in  1676  as  re-enacted 
in  most  of  the  several  states,  and  the  more  important  additional 
provisions  found  in  the  statutes  of  the  different  states. 


ESSENTIALS  OF  CONTRACTS  IS 

6.  Subject-matter  of  contract.  The  subject-matter 
of  a  contract  is  the  matter  to  which  the  agreement  relates. 
It  is  distinct  from  the  agreement  or  the  object  of  the 
contract  which  is  the  thing  that  is  to  be  done,  or  not  to 
be  done,  by  the  party  receiving  the  consideration. 

Example:  0  wishes  to  have  logs  sawed  into  lumber,  and  he 
makes  a  contract  with  X  for  this  purpose.  Before  the  work  is 
done  the  logs  are  destroyed  by  fire.  The  subject-matter  of  the 
contract  is  destroyed,  and  the  contract  for  the  sawing  is  dis- 
charged. 

The  service,  sawing,  was  not  the  subject-matter  but  the  pur- 
pose or  object  of  the  contract.  It  was  not  destroyed  but  simply 
dispensed  with.  The  same  is  true  of  the  payment  of  the  con- 
sideration for  the  service;  it  was  not  destroyed  but  merely 
dispensed  with,  because  the  subject-matter  of  the  contract  was 
destroyed. 

The  subject-matter  of  contracts  may  be  classified  under 
three  general  heads:  (1)  Property,  (2)  credits,  and  (3) 
services. 

Property  is  anything  of  value  capable  of  being  owned  or 
possessed;  it  is  also  the  right  of  ownership  or  title  which  gives 
one  the  sole  and  exclusive  right  to  possess  and  enjoy  a  thing. 
Property  is  divided  into  two  general  classes,  real  and  personal. 
Real  property  includes  lands  and  all  things  that  are  perma- 
nently aflixed  to  land.  Personal  property  includes  all  things 
movable  and  transient,  which  may  be  taken  from  place  to  place. 

Credits  may  be  the  subject-matter  of  contracts,  as  the 
ability  to  borrow  money,  or  to  purchase  goods  or  to  procure 
any  present  benefit  or  enjoyment  of  a  thing  upon  a  promise 
that  payment  will  be  made  at  a  future  time. 

Services  which  one  may  render  as  the  subject-matter  of 
ft  contract  are  of  three  classes: 


U  APPLIED  BUSINESS  LAW    . 

(1)  As  a  servant  or  employee  doing  manual  labof  6t  operative 
acts  under  the  immediate  direction  of  the  master,  involving 
the  relation  of  master  and  servant. 

(2)  As  an  agent  making  contracts  for  or  representing  a  prin- 
cipal in  the  discharge  of  particular  duties,  involving  the  relation 
of  principal  and  agent. 

(3)  As  an  independent  contractor,  doing  acts  free  from  the 
control  of  the  other  party,  save  that  the  acts  must  accord  with 
the  terms  of  the  contract,  thus  involving  the  relation  of  inde- 
pendent contractors. 

It  is  essential  to  the  validity  of  a  contract,  not  only 
that  the  parties  to  it  shall  exist  and  be  capable  of  being 
identified,  but  that  the  subject-matter  be  described  and 
identified  by  the  terms  of  the  contract  with  certainty  and 
exactness. 

7.  Operation  of  contract.  Only  parties  to  a  contract, 
as  a  rule,  are  bound  by  its  obligations  or  are  entitled  to 
its  benefits.  One  cannot  have  obligations  thrust  upon 
him  without  his  consent;  neither  can  he  impose  obliga- 
tions upon  others  without  their  consent.  Mutual  assent 
is  of  the  essence  of  every  express  contract,  though  it  may 
be  dispensed  with  in  obligations  imposed  by  law,  which 
are  in  the  nature  of  implied  contracts. 

At  common  law  a  contract  between  A  and  B  for  the  benefit 
of  X  would  confer  no  rights  on  X  as  against  either  A  or  B;  but 
the  general  rule  now  is  that  a  contract  made  expressly  for  the 
benefit  of  a  third  person  may  be  enforced  by  him  at  any  time 
before  the  parties  to  the  contract  rescind  it, 

A  third  party  who  willfully  interferes  with  the  operation  of  a 
contract  or  induces  one  of  the  parties  to  break  it  will  be  Uable 
to  the  other  party  in  damages  for  his  wrongful  act.    But  thisj 
hability  grows  out  of  tort  and  not  out   of  any  contract  imposed 
upon  the  third  party.     It  is  one  of  the  general  obligations  im- 


ESSENTIALS  OF  CONTRACTS  15 

posed  by  positive  law  that  every  person  is  bound,  without  con- 
tract, to  keep  from  injuring  the  person  or  property  of  another, 
or  infringing  upon  any  of  his  rights  (sec.  2,  ante). 

After  a  contract  has  been  made,  the  rights  in  it  relating  to 
property  may  be  assigned  or  transferred  to  a  third  party  so 
that  he  may  enforce  these  obligations  in  a  suit  against  the  prom- 
isor. But  contracts  relating  to  personal  service  or  which  involve 
a  relation  of  special  confidence  cannot  be  assigned  (sec.  34, 
post). 

The  burdens  or  liabilities  of  a  contract  can  not  be  transferred 
to  another  except  with  the  consent  of  the  party  entitled  to  its 
benefit,  but  the  property  rights  arising  out  of  contracts  may  be 
transferred  to  another  whether  the  contract  be  negotiable  or 
not.  A  non-negotiable  written  contract  for  the  payment  of 
money  or  for  property  may  be  transferred  by  indorsement,  in 
like  manner  as  a  negotiable  instrument;  such  indorsement  car- 
ries all  the  rights  of  the  assignor  under  the  instrument  to  the 
assignee,  but  these  rights  are  subject  to  all  the  claims  and  de- 
fenses existing  in  favor  of  the  maker  at  the  time  of  the  indorse- ' 
ment.  A  different  rule  appUes  to  negotiable  instruments;  they 
are  transferred  free  from  all  prior  claims  and  equities,  except 
infancy,  forgery,  and  other  absolute  defenses,  being  "couriers 
without  luggage"  (see  sec.  77,  post). 

8.  Discharge  of  contract.  Obligations  arising  under 
contracts  may  be  discharged  in  a  variety  of  ways,  as  by 
a  rescission  or  annulling  of  the  contract,  or  it  may  be  by 
a  full  performance  of  the  agreement,  or  by  substituting 
a  new  agreement,  or  by  express  provisions  contained  in 
the  contract  providing  for  its  discharge,  or  it  may  be  by 
impossibility  of  performing  the  terms  of  the  contract. 
In  certain  cases  the  discharge  may  be  by  operation  of 
the  law.  In  others,  it  may  be  by  breaking  the  contract, 
thus  giving  the  injured  party  a  ri§ht  of  actipn  for  dam- 
ages. 


16  APPLIED  BUSINESS  LAW 

(1)  To  rescind  a, contract  is  to  cancel  or  annul  it.  A  party 
to  a  contract  may  rescind  it:  (a)  If  his  consent  was  given  by 
mistake  or  obtained  by  fraud,  duress,  or  undue  influence  exer- 
cised by  or  with  the  connivance  of  the  party  to  receive  the 
benefit;  (b)  if  the  consideration  for  his  obligation  fails  through 
the  fault  of  the  party  to  receive  the  benefit;  (c)  if  the  considera- 
tion becomes  entirely  void  from  any  cause;  (d)  if  the  consider- 
ation fails  in  a  material  respect  before  it  is  rendered  to  him;  or 
(e)  he  may  rescind  by  the  consent  of  all  the  other  parties  to  the 
contract. 

(2)  Performance  of  all  the  obligations  arising  under  a 
contract  by  the  party  whose  duty  it  is  to  perform,  or  by  another 
for  him  and  with  his  assent,  if  accepted  by  the  party  who  has 
a  right  to  require  performance,  discharges  the  contract  abso- 
lutely. 

In  theory,  at  least,  contracts  are  made  with  a  view  to  their 
performance,  and,  in  general,  this  is  the  ordinary  method  of 
their  discharge. 

(a)  Performance  to  be  effective  must  be  in  the  manner  con- 
templated by  the  parties  and  at  the  required  time  and  place. 
Where  a  debtor  owes  different  debts  to  the  same  creditor  and 
does  an  act  or  makes  a  payment  equally  applicable  to  two  or 
more  of  such  debts,  he  has  a  right  to  say  which  debt  he  is  paying. 
If  the  debtor  does  not  say  to  which  debt  the  payment  shall  be 
applied,  the  creditor  may  apply  it  as  he  sees  fit.  If  neither 
party  designates  what  application  is  to  be  made  of  the  amount 
paid,  it  must  be  appUed  to  the  discharge  of  debts  in  the  follow- 
ing order: 

(i)  Interest  due  at  the  time  of  payment, 
(ii)  Principal  due  at  the  time  of  payment, 
(iii)  Obligations  earliest  in  date  of  maturity, 
(iv)  Obligations  not  secured  by  a  lien  or  surety, 
(v)  Obligations  secured  by  lien  or  collateral, 
(vi)  And  always  to  debts  legally  enforceable  rather  than  to 
ones  not  enforceable. 

(b)  If  a  creditor  at  any  time  directs  the  debtor  to  perform 
Ju§  obUgation  in  a  particular  manner^  the  contract  is  discharged 


ESSENTIALS  OF  CONTRACTS  17 

by  performance  in  that  manner,  though  the  creditor  does  not 
receive  the  benefit  of  the  performance. 

(c)  Performance  of  an  obUgation  by  one  of  several  persons 
jointly  Uable  on  a  contract  discharges  all,  but  the  party  who 
discharged  it  may  require  a  proportionate  contribution  from 
all  the  parties  joined  with  him. 

(d)  Part  performance  of  an  indivisible  contract  discharges 
a  corresponding  part  of  it,  if  the  benefit  of  such  part  perform- 
ance is  voluntarily  retained  by  the  creditor  but  not  otherwise. 
In  general,  neither  party  is  required  to  accept  anything  short 
of  a  full  and  complete  performance  of  an  entire  contract,  or 
pay  for  anything  less. 

(e)  Tender  is  an  offer  to  perform  a  legal  duty.  Tender 
of  performance  made  in  good  faith,  at  the  right  place,  at  a  proper 
time,  and  in  the  required  manner  will  discharge  any  form  of 
obligation  except  one  for  the  payment  of  money.  An  offer  of 
part  performance  is  of  no  effect. 

Tender  of  performance  does  not  discharge  an  obligation  for 
the  pa3Tnent  of  money,  but  it  will,  if  properly  made,  relieve 
the  debtor  of  liability  for  all  interest  and  costs  that  may  arise 
after  tender.  In  order  that  an  offer  of  payment  may  be  effec- 
tive, it  must  be:  (i)  Unconditional,  (ii)  for  the  exact  amount  of 
the  debt,  (iii)  in  legal  tender  money,  (iv)  made  at  the  proper 
time  and  place  and  to  the  proper  person,  and  (v)  it  must  be 
kept  good,  that  is,  as  a  continuing  offer. 

Tender  of  payment  must  be  made  at  the  place  agreed  upon 
in  the  contract,  or  if  no  place  is  agreed  upon,  then  at  the  option 
of  the  debtor:  (i)  At  any  place  named  by  the  creditor,  or  (ii) 
at  the  creditor's  residence  or  place  of  business,  or  (iii)  wherever 
the  creditor  can  be  found,  or  (iv)  if  this  cannot  be  done,  then 
at  any  place  within  the  state. 

Where  the  agreement  fixes  the  time  for  payment,  the  tender 
of  payment  must  be  made  within  reasonable  business  hours  on 
that  date,  but  if  no  date  is  fixed  by  the  terms  of  the  contract, 
then  tender  of  payment  must  be  within  a  reasonable  time  and 
before  the  debtor  has  refused  performance  upon  a  reasonable 
demand  for  payment.    Thp  tender  of  parent  must  b^  fre9 


18  APPLIED  BUSINESS  LAW 

from  any  condition  which  the  creditor  is  not  bound  to  perfonn, 
but  the  debtor  has  a  right  to  demand  a  written  receipt  for  any 
money  or  property  dehvered  in  discharge  of  an  obligation. 

(3)  Discharge  by  agreement  Since  the  power  to  create 
obligations  is  no  greater  than  the  power  to  discharge  them,  it 
follows  that  the  obligations  arising  under  contracts  may  be 
discharged  by  mutual  agreement  of  the  parties. 

Where  neither  party  has  performed  his  obligation  or  any 
part  of  it,  the  parties  may  mutually  release  each  other.  If  there 
has  been  performance  or  part  performance  by  one  party,  the 
release  of  the  other  must  be  under  seal  or  have  some  new  con- 
sideration to  support  it.  In  those  states  which  have  abolished 
all  distinction  between  sealed  and  unsealed  instruments,  it 
will  be  sufficient  if  the  release  is  in  writing. 

Novation.  Discharge  by  mutual  agreement  may  take  the 
form  of  novation,  that  is,  the  substitution  of  a  new  obUgation 
for  an  existing  one.  Novation  is  in  fact  a  new  contract  and  is 
subject  to  all  the  rules  governing  contracts  in  general.  It  arises, 
(i)  by  the  substitution  of  a  new  obligation  between  the  same 
parties,  with  intent  to  extinguish  the  old  obhgation;  (ii)  by  the 
substitution  of  a  new  debtor  in  place  of  the  old  one,  with  intent 
to  release  the  latter;  or  (iii)  by  substitution  of  a  new  creditor 
in  place  of  the  old  one,  with  intent  to  transfer  the  rights  of  the 
latter  to  the  former. 

A  general  release  does  not  extend  to  claims  which  the 
creditor  does  not  know  of  or  suspect  to  exist  in  his  favor  at  the 
time  of  making  the  release,  or  which  if  known  by  him  would 
have  materially  affected  his  settlement  with  the  debtor.  A 
release  of  one  of  two  or  more  joint  debtors  does  not  release  the 
others  unless  they  are  mere  guarantors,  nor  does  it  affect  their 
right  to  require  contribution  from  him. 

(4)  A  contract  may  be  discharged  by  express  provisions 
contained  in  the  agreement  providing  for  its  discharge,  as  by 
the  lapse  of  a  specified  time,  or  by  the  happening  of  a  specified 
event.  The  agreement  may  provide  that  by  giving  a  required 
notice  either  party  may  withdraw  from  the  contract  and  thug 
discharge  it, 


ESSENTIALS  OP  CONTRACTS  Id 

Insurance  contracts  frequently  impose  conditions  which  if 
not  complied  with  will  discharge  them,  as  that  dwellings  shall 
be  occupied  in  the  case  of  fire  insurance,  or  that  a  ship  shall 
not  deviate  from  its  regular  course  in  the  case  of  marine  in- 
surance. 

Conditional  sales  provide  for  a  discharge  of  the  contract 
upon  a  failure  to  comply  with  the  required  conditions.  Options 
for  the  purchase  or  exchange  of  property  are  discharged  by 
mere  expiration  of  the  time  limited,  unless  the  offer  contained 
in  the  option  be  accepted  before  the  time  expires. 

(5)  Impossibility  of  performing  the  obligations  of  a  con- 
tract is  sufficient  ground  for  its  discharge  since  the  law  never 
requires  impossibilities.  A  condition  in  a  contract  which  is 
impossible  of  performance  or  unlawful  is  void  and,  to  that  ex- 
tent, discharges  the  contract. 

Impossibility  of  performance  may  arise  (i)  from  a  destruction 
of  the  subject-matter  of  the  contract,  without  fault  of  either 
party,  or  (ii)  by  operation  of  the  law,  or  (iii)  from  the  death  or 
disability  of  one  of  the  parties  in  contracts  for  personal  service. 
In  all  such  cases  the  obligations  of  the  contracts  are  discharged. 

(6)  Discharge  by  operation  of  law  arises  when  contract 
obhgations  are  extinguished  by  the  effect  of  the  law  rather 
than  by  the  intention  of  the  parties.  Such  a  discharge  may 
arise  by  the  death  of  one  of  the  parties  in  contracts  which  in- 
volve a  relation  of  special  confidence  and  trust,  or  where  the 
obligation  is  for  personal  service,  but  the  death  of  a  party  will 
not  discharge  a  contract  which  involves  the  payment  of  money 
or  mere  property  rights. 

Alteration  of  a  written  instrument,  intentional  and  un- 
authorized, will  discharge  the  party  otherwise  liable  on  the 
contract.  But  a  written  contract  may  be  altered  by  the  mutual 
agreement  of  the  parties  if  the  alteration  is  in  writing. 

Merger  of  contracts  of  inferior  type  into  those  of  a  su- 
perior type  arise  in  three  principal  ways: 

(a)  Where  parties  have  oral  agreements,  these  may  be  merged 
in  a  written  contract  and  to  that  extent  discharged,  (b)  Where 
the  parties  have  a  written  contract  with  various  provisions  and 


20  APPLIED  BUSINESS  LAW 

the  written  contract  is  changed  in  form  to  a  contract  under 
seal,  or  to  the  form  of  a  deed,  and  any  one  or  more  of  the  pro- 
visions in  the  simple  contract  are  omitted  from  the  sealed  in- 
strument, they  are  said  to  be  merged  in  the  sealed  instrument 
and  thereby  discharged,  (c)  Where  one  sues  and  recovers 
judgment  on  a  contract,  whether  oral,  written,  or  under  seal, 
the  contract  is  merged  in  the  judgment  since  the  judgment  is 
of  higher  dignity  than  the  contract,  even  though  the  contract 
be  under  seal  as  a  bond  or  deed. 

Discharge  in  bankruptcy  arises  where  a  party  has  become 
insolvent  and  is  judicially  declared  bankrupt;  he  is  thereby 
discharged  from  liability  on  his  ordinary  contracts.  Mere  in- 
solvency does  not  operate  to  discharge  one  from  liabihty  on 
his  contracts.  The  matter  must  be  adjusted  by  a  proceeding 
in  a  court  of  bankruptcy. 

(7)  Discharge  by  breach  arises  where  one  fails  to  perform 
his  obhgations  or  attempts  to  perform  them  in  an  improper 
manner.  While  the  breach  usually  reUeves  the  innocent  party 
from  all  liabihty  on  the  contract,  the  other  at  once  becomes 
answerable  to  him  in  damages. 

Breach  may  arise:  (a)  By  non-performance,  that  is,  by 
a  simple  failure  to  perform  the  obligations  imposed  by  the 
contract,  except  where  the  party  is  excused  from  performance 
or  legally  justified  in  refusing  to  perform.  In  mercantile  trans- 
actions, as  sales,  where  time  is  of  the  essence  of  the  contract, 
failure  to  perform  or  tender  performance  at  the  required  time 
may  be  treated  as  a  final  breach  and  as  releasing  the  innocent 
party  from  all  habUity  on  the  contract. 

(b)  By  repudiation,  or  a  refusal  to  perform  the  obligations 
of  a  contract.  This  form  of  breach  may  take  place  before  per- 
formance is  due,  or  it  may  be  a  refusal  to  accept  a  benefit  or 
bear  a  burden  imposed  by  the  agreement.  In  any  event  it  is 
a  breach  giving  rise  to  an  immediate  right  of  action  for  dam- 
ages. 

(c)  By  a  breach  of  condition  or  the  breaking  of  an  essential 
term  of  a  contract  which  thereby  discharges  it.  A  breach  of 
warranty  gives  rise  to  a  right  of  action  for  damages  where 


ESSENTIALS  OF  CONTRACTS  21 

title  has  passed  to  a  buyer,  but  does  not  necessarily  discharge 
the  contract.  In  most  states,  however,  the  buyer  may  either 
rescind  the  sale,  return  the  goods  and  recover  the  price  paid, 
or  he  may  keep  the  goods  and  sue  for  the  breach  of  warranty. 

9.  Remedies  for  breach  of  contract.  As  a  general 
rule  compensation  is  the  relief  or  remedy  provided  by 
law  for  the  violation  of  contract  rights,  and  the  means  of 
securing  their  performance.  Preventive  and  specific 
relief  may  be  given  in  special  cases  where  the  contract  is 
of  such  a  peculiar  nature  that  money  damages  would 
not  afford  an  adequate  remedy.  Every  person  who  suffers 
loss  or  harm  in  person  or  property  from  the  unlawful 
act  or  omission  of  another  may  recover  from  the  person 
in  fault  a  compensation  therefor  in  money,  which  is  called 
damages. 

The  measure  of  damages  for  breach  of  contract  is 
the  amount  which  will  compensate  the  injured  party  for 
all  losses  caused  by  the  breach.  The  damages  must  be 
certain  and  clearly  ascertainable  or  they  cannot  be  re- 
covered. 

Remedies  for  breach  of  contract  are  either  legal  or  equita- 
ble. The  legal  remedies  are  those  afforded  by  the  courts  of 
law,  and  are,  in  general,  actions  for  damages.  The  theory  of 
the  law  is  that  all  contract  obligations  and  property  rights  may 
be  reduced  to  a  money  value  and  that  all  wrongs  or  injuries 
affecting  these  may  be  paid  for  in  money  damages. 

Courts  of  equity  afford  other  and  different  remedies  in 
those  special  cases  where  money  damages  do  not  afford  ade- 
quate reUef. 

These  remedies  are:  (a)  To  enforce  obligations  arising  under 
contracts  by  writs  of  specific  performance,  where  a  party  is 
made  tc  do  the  particular  thing  which  he  in  his  contract  prom- 
ised to  do;  by  writs  for  correcting  or  reforming  instrumentSj 


22  APPLIED  BUSINESS  LAW 

as  where  there  was  mutual  mistake  in  the  formation  of  a  written 
contract,  it  may  he  changed  to  express  the  exact  intention  of 
the  parties;  by  writs  of  re-execution  which  compel  a  party  to 
execute  a  new  instrument  or  document  where  the  original  has 
been  lost  or  destroyed,  (b)  To  prevent  a  continuing  breach 
of  contract,  or  injury  to  one's  rights,  as  where  a  writ  of  injunc- 
tion is  issued  to  restrain  a  party  from  the  commission  of  some 
particular  act.  (c)  To  protect  and  regulate  property  rights, 
by  regulating  trusts,  as  where  an  estate  is  left  in  trust  for  a 
particular  purpose;  by  the  foreclosure  of  mortgages  and  deeds 
of  trust;  by  the  appointment  and  control  of  receivers,  in  cases 
of  insolvency  or  dissolution  of  corporations. 

10.  Methods  of  discharging  right  of  action.  The 
methods  of  adjusting  losses  arising  out  of  breach  of  con- 
tracts are:  (1)  Those  which  may  be  applied  by  the  parties 
themselves,  (2)  those  which  may  be  rendered  by  others 
acting  for  the  parties,  and  (3)  by  the  limitation  of  time. 

Accord  and  satisfaction  by  the  parties  is  a  common  method 
of  discharging  a  right  of  action  arising  from  the  breach  of  a 
contract.  Accord  is  an  agreement  to  accept  in  satisfaction 
of  a  claim  something  different  from  or  less  than  that  to  which 
the  person  consenting  to  accept  is  entitled.  Satisfaction  is  the 
actual  acceptance  of  the  agreed  thing  or  amount  in  the  place 
of  damages,  and  it  is  this  satisfaction  that  extinguishes  the 
right  of  action. 

In  contracts  for  the  payment  of  money,  the  acceptance  of 
a  part  payment  is  not  an  accord  and  satisfaction,  unless  the 
claim  or  its  amount  is  in  dispute  or  there  is  a  new  consideration 
added,  or  there  is  a  release  of  the  balance  in  writing  or  under 
seal.  But  where  a  debtor  makes  a  composition  with  his  cred- 
itors by  which  he  is  released  upon  the  payment  of  part  of  the 
amount  due  each,  all  the  parties  are  bound,  and  this  will  dis- 
charge all  rights  of  action  as  against  the  debtor. 

Arbitration  and  award,  by  another  acting  for  the  parties, 


ESSENTIALS  OE  CONTfftACTS  23 

is  a  valid  method  of  discharging  a  right  of  action  arising  through 
a  breach  of  contract.  An  agreement  to  have  a  disinterested 
third  party,  or  parties,  settle  a  disputed  question  is  termed 
a  submission.  The  hearing  that  follows  the  submission  to 
the  arbitrators  and  the  method  by  which  they  arrive  at  their 
judgment  is  the  arbitration,  while  the  judgment  or  decision 
of  the  arbitrators  is  the  award.  A  valid  award  is  binding  on 
the  parties.  It  must  be  free  from  fraud  or  partiaUty,  accord 
with  the  terms  of  the  submission,  and  cover  all  the  points  in 
dispute. 

Statutes  of  limitations  fix  certain  time  limits  within  which 
actions  of  various  kinds  must  be  brought,  otherwise  the  remedy 
is  barred,  or  outlawed,  by  the  statute.  The  statute  begins  to 
run  from  the  time  the  cause  of  action  arises,  and  in  the  case  of 
simple  contracts  the  limitations  vary  from  two  to  eight  years 
in  the  different  states,  and  from  five  to  twenty  years  in  the  case 
of  contracts  under  seal. 

The  soldiers'  and  sailors'  relief  act,  or  moratorium  act  as 
it  is  commonly  known,  extends  to  all  cases  which  in  any  way 
affect  the  rights  or  liabilities  of  soldiers  and  sailors  in  the  Gov- 
ernment service,  even  though  others  are  also  jointly  Uable  on  the 
same  obligations.  All  such  rights  of  actions  are  suspended 
during  the  period  of  the  present  war  by  Act  of  Congress,  Oc- 
tober, 1917. 

QUESTIONS  FOR  REVIEW 

1.  What  interests  are  touched  by  the  rules  of  business?   What 

is  business?    Define  law. 

2.  What  are  obligations?    How  do  they  arise?    Mention  some 

forms  of  obligations. 

3.  Define  contract.    Give  classes  of  contracts. 

4.  Give  the  essentials  of  a  vaUd  contract.   What  are  essentials? 

(see  sec.  1,  ante). 

5.  Discuss  the  rights  and  liabilities  of  minors.     What  are 

necessaries?     Define    agreement.     How    is    agreement 
affected  by  mistake;  duress;  fraud;  undue  influence? 


d4  APPLIED  BUSINESS  LAW 

Explain  offer  and  acceptance.  Give  the  principal  rules 
governing  these.  Define  consideration.  When  neces- 
sary? What  is  meant  by  "the  object  of  a  contract?" 
Mention  some  forms  of  unlawful  contracts.  Must  con- 
tracts be  in  writing?    When?    Why? 

6.  Explain  the  subject-matter  of  contracts.    Give  illustration. 

Discuss:  Property,  credits,  and  service. 

7.  Who  are  bound  by  the  obUgations  of  contracts?    Explain 

assignment,  of  rights,  of  Uabihties. 

8.  Give  different  methods  of  discharging  contracts.    What  is 

rescission?  When  may  one  rescind?  What  is  perform- 
ance? Tender  of  performance?  Part  performance? 
Tender  of  money?  Effect  of?  Define  novation.  Discuss 
effect  of  alteration. 

9.  What  are  the  remedies  for  breach  of  contract?    Distinguish 

between  legal  and  equitable  remedies. 
10.  How  may  rights  of  action  be  discharged?    Explain  accord 
and  satisfaction;  arbitration  and  award;  the  purpose  of 
the  statute  of  limitations;  of  the  soldiers'  and  sailors' 
relief  act. 

TEST  PROBLEMS  FOR  REVIEW 

1.  May  A  and  B  make  a  contract  that  X  is  to  do  some  particular 

thing?  Test:  How  many  of  the  essentials  of  a  vaUd  con- 
tract are  present?    What  one  or  ones  are  missing? 

2.  A  owes  B  $100,  and  B  owes  C  $100.    Unknown  to  C,  A  and 

B  agree  that  A  is  to  pay  C  $100  in  discharge  of  B's  obliga- 
tion to  C.  Later,  on  learning  of  this,  C  sues  to  recover 
from  A.    With  what  result? 

3.  A  and  B  make  an  agreement  that  A  shall  leave  Whiteacre  to 

B  in  consideration  that  B  shall  pay  to  C  $100  a  month  as 
long  as  C  shall  Uve.  A  carries  out  his  part  of  the  agree- 
ment but  B  refuses  to  pay  C,  who  was  not  a  party  to  the 
contract.    May  C  recover  from  B?    Give  reasons. 

4.  A  offers  B  $200  for  his  Belgian  draft  horse.    B  answers, 

"Agreed;  I  accept  your  offer."    In  fact  B  had  two  such 


ESSENTIALS  OF  CONTRACTS  25 

horses,  and  A  meant  one  while  B  meant  the  other.  Is 
there  a  contract? 

5.  D  out  of  charitable  motives  suppUes  necessary  articles  to 

F's  mother  who  is  old  and  poor.  Afterwards,  F  promises 
to  pay  D  for  the  service  but  fails  to  do  so.  D  brings  an 
action  to  recover  the  amount.    With  what  result? 

6.  The  X  company  contracts  to  supply  A  with  ice.    Later  on 

the  X  company  sells  out  to  the  Z  company  which  suppUes 
A  with  ice  for  a  long  time.  When  A  learns  of  the  change, 
he  refuses  to  receive  ice  of  the  Z  company  or  pay  them  for 
the  ice  already  supplied.  What  are  the  rights  of  the 
parties? 
Read:  Boston  Ice  Company  v.  Potter,  123  Mass.  at  page  28. 

7.  0  offers  P  $50  if  he  will  paint  his  barn.    P  says  nothing  but 

later  on  paints  the  bam.  May  he  recover?  Was  there  a 
contract? 

8.  Suppose  when  P  came  to  paint  the  bam,  0  had  seen  him  and 

said,  "I  do  not  want  the  barn  painted,  now.  I  have 
changed  my  mind."  What  would  be  O's  liabihty  to  P? 
Is  there  a  contract  between  the  parties? 

9.  R  contracted  to  sing  for  S  at  the  latter's  theater.    S  ad- 

vertised the  event  at  great  expense.  Later  R  refused  to 
sing,  alleging  a  throat  trouble.  S  sued  for  damages. 
Result? 

10.  As  in  number  9,  except  R  breaks  the  contract  with  S  and 

engages  to  sing  for  X,  a  rival  theater  company.  What 
are  the  rights  of  S? 

11.  0,  in  Detroit,  writes  P  in  Chicago  offering  to  sell  a  factory 

site,  known  to  the  parties,  for  $100,000.  P  mails  his 
acceptance  by  return  of  post.    Is  there  a  contract? 

12.  The  acceptance  was  never  received  by  0,  who  later  sold  the 

property  to  Ford  &  Company.  P  brings  an  action  for 
damages.    Result? 

13.  As  in  number  11,  except  that  P  mails  his  acceptance  six 

weeks  later.  In  the  meantime,  0  has  sold  the  property. 
What  are  P's  rights? 

14.  As  in  number  11,  except  that  after  P  mails  his  acceptance 


26  APPLIED  BUSINESS  LAW 

and  before  it  reaches  0,  he  telegraphs  a  withdrawal  of  his 
acceptance.  O  insists  that  there  is  a  contract  and  sues 
P  for  a  breach  of  his  agreement.  Result? 
15.  As  in  number  11,  except  that  C  wires  his  withdrawal  of  the 
offer  after  P  mailed  his  acceptance  but  before  it  had 
reached  0.    What  are  the  rights  of  the  parties? 


CHAPTER  II 
AGENCY 

11.  Agency.  The  relation  of  an  agent  to  his  principal 
is  termed  an  agency.  An  agent  is  one  who  represents 
another,  called  the  principal,  in  dealings  with  third  per- 
sons. Agency  arises  only  by  contract  which  may  be 
express  or  impUed,  as  where  an  agent  has  authority  to 
act  for  a  principal  and  consents  so  to  act. 

The  relation  of  agency  is  founded  on  the  principle  that  what- 
ever business  one  may  transact  in  person  for  himself  he  may 
transact  through  the  agency  of  another  acting  for  him.  The 
limitation  of  agency  is  just  the  converse  of  this:  That  is,  what  a 
person  may  not  do  himself  he  cannot  do  through  the  agency  of 
another. 

Any  person  who  has  capacity  to  make  contracts  may  appoint 
agents  to  act  for  him,  and  any  person  who  has  sufficient  intelli- 
gence to  act  may  act  as  an  agent  for  another.  Agents  are  either 
general  or  special.  One  appointed  to  perform  a  particular  act, 
or  transaction,  is  a  special  agent;  all  others  are  classed  as  general 
agents. 

Agencies  are  either  express  or  implied.  An  express  agency 
arises  from  an  actual  contract  between  the  principal  and  agent. 
An  implied  or  ostensible  agency  arises  when  the  principal  in- 
tentionally or  through  the  want  of  ordinary  care  causes  third 
persons  to  beUeve  a  person  to  be  his  agent  who  in  fact  is  not 
really  an  agent. 

12.  Authority  of  agents.  An  agency  may  be  created 
and  authority  conferred  upon  an  agent  in  advance  of  his 
acts,  or  it  may  be  by  a  subsequent  ratification.    The 

27 


28  APPLIED  BUSINESS  LAW 

agent's  authority  may  extend  to  any  acts  which  his  prin- 
cipal may  do,  except  those  which  require  the  principal's 
personal  attention.  A  consideration  between  the  princi- 
pal and  his  agent  is  not  necessary  to  make  an  authority 
binding  on  the  principal. 

"Authority  may  be  conferred  by  word  of  mouth  and  it  is  suffi- 
cient for  any  purpose  except  where  the  agent  is  to  make  con- 
tracts required  by  law  to  be  in  writing  and  under  seal,  in  which 
case  the  authority  must  be  given  by  a  writing  under  seal.  The 
authority  under  seal  is  called  a  power  of  attorney,  and  the  agent 
is  known  as  an  attorney  in  fact. 

Ratification  is  the  aflSirmance  or  adoption  of  what  was 
previously  not  binding.  In  agency  it  appHes  to  the  adop- 
tion of  the  acts  of  an  agent  which  were  not  previously 
authorized  and  which  were  without  any  show  of  authority. 
The  essentials  of  a  vaHd  ratification  are:  (1)  That  the 
principal  must  have  been  in  existence  at  the  time  the 
agent  assumed  to  act  for  him;  (2)  that  the  principal  must 
have  power  to  do  in  his  own  right  the  thing  ratified;  and 
(3)  the  agent  must  have  assumed  to  act  in  the  name  of 
the  principal  and  for  his  benefit,  to  entitle  him  to  take 
advantage  of  the  contract  negotiated  by  the  agent. 

Authority  by  ratification  can  be  given  only  in  the  manner 
necessary  to  confer  an  original  authority  for  the  act  ratified. 
Where  an  oral  authority  would  have  been  sufficient,  ratification 
may  be  by  accepting  or  keeping  the  benefit  of  the  act,  with  notice 
of  aU  the  facts  concerning  the  transaction.  Ratification  without 
full  knowledge  of  aU  the  facts  concerning  it  is  not  binding  and 
may  be  rescinded  by  the  principal. 

An  agent  has  such  authority  as  is  actually  or  impliedlj''  con- 
ferred up>on  him  by  the  principal.  Actual  authority  is  such  as  a 
principal  intentionally  confers  upon  the  agent,  or  by  want  of 


AGENCY  2d 

ordinary  care  allows  the  agent  to  believe  himself  to  possess. 
The  implied  or  ostensible  authority  of  an  agent  is  such  as  a  prin- 
cipal intentionally,  or  by  want  of  ordinary  care,  causes  third 
persons  to  beUeve  an  agent  to  possess.  Every  agent  has  actual 
or  ostensible  authority  unless  specially  Umited  by  his  principal, 
and  then  only  as  to  persons  who  have  notice  of  the  limitation. 

An  agent  has  authority:  (1)  To  do  everything  necessary 
for  effecting  the  purposes  of  his  agency;  and,  (2)  to  make  rep- 
resentations concerning  any  matter  of  fact  upon  which  his  right 
to  use  his  authority  depends  and  the  truth  of  which  cannot  be 
readily  ascertained  by  the  person  to  whom  the  representations 
are  made.  An  agent  has  power  to  disobey  instructions,  when 
acting  within  the  scope  of  his  agency,  in  cases  where  it  is  clearly 
in  the  interest  of  his  principal  that  he  should  do  so  and  he  has 
not  time  to  communicate  with  his  principal  in  regard  to  the 
matter. 

13.  Obligation,  of  principal.  The  principal  is  bound 
by  all  the  acts  of  his  agent  acting  within  the  scope  of  his 
actual  or  apparent  authority,  and  he  is  entitled  to  all  the 
benefits  arising  from  these  acts  and  he  must  assume  all 
their  liabilities.  When  an  agent  exceeds  his  authority, 
the  principal  is  bound  by  his  authorized  acts,  only  so  far 
as  they  are  plainly  separable  from  those  which  are  un- 
authorized. 

Where  credit  is  given  exclusively  to  an  agent  by  a  third  person 
deaUng  with  him,  the  principal  is  relieved  from  hability  to  the 
third  person  by  making  payment  or  other  settlement  with  his 
agent  in  good  faith  and  before  receiving  notice  that  the  third 
party  has  decided  to  hold  him,  the  principal,  liable.  Notice 
to  the  agent  is  notice  to  the  principal,  and  as  against  the  prin- 
cipal, both  principal  and  agent  are  deemed  to  have  notice  of 
whatever  either  has  notice  of,  and  ought,  in  good  faith  and  in 
the  exercise  of  ordinary  diligence,  to  communicate  to  the  other. 

A  principal  is  responsible  to  third  persons  for  the  negUgence 
or  wrongful  acts  of  his  agents  in  the  transaction  of  the  business 


so  APPLIED  BUSINESS  LAW 

of  the  agencies  except  where  a  principal  is  by  law  required  to 
employ  a  particular  agent;  but  a  principal  is  not  liable  for  the 
willful  wrongs  of  an  agent  committed  while  the  agent  is  engaged 
in  his  service  unless  he  has  authorized  or  ratified  them. 

The  obligations  of  a  principal  to  his  agent  are:  (1)  To 
compensate  the  agent  for  his  service,  except  in  the  case  of  gratu- 
itous agencies;  (2)  to  reimburse  him  for  expenses  and  costs  in 
excess  of  those  required  of  him  by  the  terms  of  the  agency;  and 
(3)  to  indemnify  him  or  save  him  harmless  from  all  loss  arising 
from  his  duties  as  agent. 

14.  Obligations  of  agent.  To  third  parties,  the  agent 
is  held  to  warrant  that  he  has  the  authority  he  assumes, 
and  he  is  answerable  in  damages,  to  all  with  whom  he  has 
dealings,  for  breach  of  this  warranty  if  he  does  not  in  fact 
have  such  authority. 

To  the  principal  he  owes  the  following  general  duties: 
(1)  To  act  in  good  faith  and  with  loyalty  to  the  best 
interests  of  the  principal;  (2)  to  act  with  reasonable  pru- 
dence and  required  skill;  (3)  to  act  in  person,  unless  he 
is  permitted  to  appoint  subagents;  (4)  to  have  regard  to 
lawful  instructions;  and  (5)  to  render  an  accounting  for 
all  property  belonging  to  the  principal  and  for  all  acts 
performed  in  his  behalf.  An  agent  must  use  ordinary 
diligence  to  keep  his  principal  informed  of  his  acts  in  the 
course  of  the  agency. 

When  an  agent  receives  a  thing  for  the  benefit  of  his  principal, 
and  another  person  is  entitled  to  it,  he  must  surrender  it  to  such 
person  on  demand,  on  being  paid  for  any  advances  which  he 
may  have  made  in  good  faith  on  account  of  the  thing,  or  he  will 
be  responsible  for  it,  if,  after  notice  from  the  true  owner,  he 
delivers  it  to  his  principal. 

An  agent,  or  one  who  assumes  to  act  as  such,  is  liable  as  a 
principal  to  third  persons  in  the  following  cases:  (a)  When  credit 


AGENCY  81 

is  given  to  him  personally  in  a  transaction  and  with  his  knowledge 
and  consent;  (b)  when  he  enters  into  a  written  contract  in  the 
name  of  his  principal,  without  beUeving  in  good  faith  that  he 
has  authority  to  do  so;  (c)  when  his  acts  are  wrongful  in  their 
nature;  (d)  when  he  signs  sealed  instruments  in  his  own  name; 
(e)  when  he  signs  negotiable  instnmients  in  his  own  name,  or 
in  such  manner  that  the  principal  is  not  bound;  (f)  when  he 
acts  in  excess  of  his  authority  so  that  his  principal  is  not  bound; 
and  (g)  when  he  contracts  for  a  fictitious  principal. 

16.  Delegation  of  agency.  An  agent  may,  unless 
expressly  denied  this  right,  delegate  his  authority  to 
another  in  the  following  cases:  (1)  When  the  act  to  be 
done  is  purely  mechanical,  not  involving  personal  judg- 
ment or  personal  trust;  (2)  when  it  is  such  as  the  agent 
himself  cannot  lawfully  perform  but  the  subagent  can, 
as  where  the  subagent  is  an  attorney  at  law  conducting 
a  lawsuit  and  the  agent  is  not  a  lawyer;  (3)  when  the 
custom  of  the  business  permits  the  agent  to  delegate  such 
powers,  as  where  a  shipmaster  delegates  the  duty  of 
navigating  a  vessel  to  a  pilot;  or  (4)  when  the  right  of 
delegation  is  specially  authorized  by  the  original  princi- 


Sub-agents,  lawfully  appointed,  represent  the  principal 
in  the  same  manner  and  to  the  same  effect  as  the  original  agent, 
and  the  latter  is  not  liable  to  third  persons  for  the  acts  of  the  sub- 
agents.  But  if  an  original  agent  acting  without  authority  em- 
ploys a  sub-agent,  the  former  is  a  principal  and  the  latter  is  his 
agent,  and  the  principal  of  the  original  agent  is  in  no  way  liable 
for  the  acts  of  the  sub-agent. 

16.  Particular  agencies.  Auctioneers  are  agents 
employed  to  sell  goods  for  a  principal  at  public  sale  and 
to  the  highest  bidder.   An  auctioneer  bae  authority  from 


32  APPLIED  BUSINESS  LAW 

the  bidder  at  the  auction,  as  well  as  from  the  seller,  to 
bind  both  by  a  memorandum  of  the  contract  of  sale. 

In  the  absence  of  special  authorization  or  usage  to  the  contrary, 
the  auctioneer  has  authority:  (a)  To  sell  by  pubUc  auction  to 
the  highest  bidder;  (b)  to  sell  for  cash  only,  except  such  articles 
as  are  usually  sold  on  credit  at  auction;  (c)  to  warrant  in  like 
manner  as  other  agents  to  sell,  that  is,  to  warrant  the  title  of  the 
principal  and  the  quality  and  quantity  of  the  property;  (d)  to 
prescribe  reasonable  rules  and  terms  of  sale;  (e)  to  deliver  the 
thing  sold,  upon  payment  of  the  price;  (f)  to  collect  the  price; 
and  (g)  to  do  whatever  else  is  necessary  in  the  ordinary  course 
of  business  for  effecting  these  purposes  (see  sec.  50,  post). 

Factors  are  commonly  known  as  commission  mer- 
chants. They  are  agents  who,  in  the  pursuit  of  an  inde- 
pendent calling,  are  employed  by  others  to  sell  property 
for  them,  and  are  invested  by  the  owners  with  the  posses- 
sion or  control  of  the  property,  or  are  authorized  to  re- 
ceive pajnnent  for  it  from  the  purchaser.  Factors  have 
authority  to  deal  with  the  property  of  their  principals  as 
their  own  in  transactions  with  persons  not  having  notice 
of  the  true  ownership. 

In  addition  to  the  authority  of  ordinary  agents,  a  factor  has 
actual  authority  from  his  principal,  unless  specially  restricted, 
(a)  to  insure  all  property  consigned  to  him  uninsured,  (b)  to 
sell  on  credit  anything  intrusted  to  him  for  sale,  except  such 
things  as  it  is  customary  to  sell  on  credit,  but  not  to  exchange, 
mortgage,  or  pledge  the  same,  and  (c)  to  delegate  his  authority 
to  his  partner  or  partners  or  to  his  servant,  but  not  to  any  person 
in  an  independent  employment. 

Shipmasters.  The  master  of  a  ship  is  appointed  by 
the  owner  and  holds  during  his  pleasure.  He  is  a  general 
agent  for  the  owner  in  all  matters  concerning  the  ship. 


AGENCY  33 

He  is  bound  to  be  on  board  when  entering  or  leaving  port, 
harbor,  or  river.  At  such  times  he  is  bound  to  take  a 
pilot  if  one  offers  and  while  the  pilot  is  on  board  the 
navigation  of  the  ship  devolves  on  him. 

The  master  of  a  ship  has  authority  to  borrow  money  on  the 
credit  of  its  owner  if  it  is  necessary  to  enable  him  to  complete 
the  voyage,  and  if  neither  the  owner  nor  his  agent  can  be  con- 
sulted without  injurious  delay.  He  is  a  general  agent  for  the 
owners  of  the  cargo  during  a  voyage,  and  has  authority  to  do 
whatever  they  might  do  for  the  preservation  of  their  respective 
interests. 

17.  Termination  of  agency.  An  agency  is  terminated, 
as  to  every  person  having  notice  thereof,  by:  (1)  The 
expiration  of  its  terms;  (2)  the  destruction  of  the  subject- 
matter  of  the  agency;  (3)  the  death  of  the  agent;  (4)  his 
renunciation  of  the  agency;  or  (5)  the  incapacity  of  the 
agent  to  act  as  such. 

Unless  the  power  of  an  agent  is  coupled  with  an  interest  in 
the  subject-matter  of  the  agency,  it  is  terminated,  as  to  every 
person  having  notice  thereof  by:  (a)  Its  revocation  by  the  prin- 
cipal; (b)  by  the  death  of  the  principal;  or  (c)  by  his  incapacity 
further  to  contract. 

QUESTIONS  FOR  REVIEW 

11.  Explain  the  relation  of  agency.    Upon  what  principle  or 

theory  is  it  founded?   What  are  its  hmitations?  Who  may 
be  a  principal?    Agent? 

12.  How  may  an  agent  derive  his  authority?    What  are  the 

essentials  of  ratification? 

13.  What  are  the  obligations  of  a  principal? 

14.  The  obUgations  of  an  a^ent?    When  may  an  agent  be  liable 

as  a  principal? 

15.  When  may  an  agent  delegate  his  authority?   To  whom  is  a 

sub-agent  responsible? 


84  APPLIED  BUSINESS  LAW 

16.  State  the  duties  and  authority  of  an  auctioneer;  of  a  factor; 

of  a  shipmaster.  What  implied  authority  has  the  ship- 
master? Of  a  factor?  May  he  pledge  or  mortgage  goods 
consigned  to  him  by  a  principal? 

17.  How  may  a  contract  of  agency  be  terminated?    What  is 

understood  by  a  power  of  agency  coupled  with  an  interest? 

TEST  PROBLEMS  FOR  REVIEW 

1.  M,  an  infant,  authorizes  A  by  power  of  attorney,  to  sell  and 

convey  "Blackacre"  to  X.  A  makes  the  conveyance  and 
deHvers  to  M  the  purchase  money.  Is  the  conveyance 
valid? 

2.  As  in  number  1,  except  M  seeks  to  ratify  the  conveyance 

when  he  becomes  of  age.    Is  this  ratification  valid? 

3.  P  is  a  cotton  dealer.     He  employs  A  to  purchase  cotton  for 

him.  A  makes  a  written  contract  with  O  for  the  purchase 
of  1000  bales  of  cotton,  500,000  lbs.,  at  30c.  a  pound.  At 
the  time  of  the  purchase  A  told  0  that  he  was  acting  for  P. 

(a)  If  P  refuse  to  perform,  what  right  has  0  against  him? 

Against  A,  the  agent? 

(b)  If  0  refuse  to  perform,  what  right  has  P  against  him? 

Against  A,  his  agent? 
Note:  The  price  fixed  on  cotton  by  the  Government  at  this 
time  was  27c.  a  pound.    What  effect  will  this  have  on  the 
contract  of  the  parties? 

4.  C  appoints  A  his  attorney  to  collect  certain  debts.   A  makes 

a  reduction  in  the  amount  of  each  debt  to  the  debtor  in 
consideration  of  prompt  payment.  Is  C,  the  creditor, 
bound  by  the  act  of  A?  May  he  recover  the  balance? 
If  so,  from  whom? 

5.  P  desires  a  horse  owned  by  0,  but  the  latter  refuses  to  sell 

to  P  at  any  price.  P  then  hires  A  to  negotiate  a  contract 
for  the  purchase  of  the  horse,  and  A  carries  out  this  scheme. 
P  then  tenders  the  purchase  price  to  0  and  demands  the 
horse.  0  refuses  to  deliver  the  horse,  saying,  "I  have  a 
right  to  choose  the  person  or  persons  with  whom  I  deal," 
What  are  P's  rights? 


CHAPTER  III 
SERVICE 

18.  Employment.  A  contract  of  employment  is  one 
by  which  an  employer  engages  another,  called  the  em- 
ployee, to  do  something  for  the  benefit  of  the  employer, 
or  a  third  person,  the  service  being  for  compensation  or 
reward. 

Example  :  A,  an  employer,  engages  B  to  act  as  his  gardener  at 
his  country  place  at  a  salary  of  sixty  dollars  a  month  and  found. 
This  is  a  contract  of  employment  from  month  to  month  and  is 
vaUd  whether  oral  or  written. 

19.  Obligations  of  employer.  The  employer  must 
afford  the  employee  a  proper  opportunity  for  carrying 
out  the  terms  of  the  employment  and  he  must  pay  the 
agreed  compensation.  If  no  wages  are  agreed  upon, 
then  he  must  pay  a  reasonable  wage.  An  employer  must 
save  his  employee  free  from  loss  arising  from  injuries 
which  are  the  result  of  the  discharge  of  his  duties  as  such, 
or  of  his  obedience  to  the  directions  of  the  employer,  and 
he  must  reimburse  him  for  all  sums  necessarily  expended 
in  the  interest  of  the  employer.  The  employer  must,  in 
all  cases,  indemnify  his  employee  for  losses  caused  by 
the  employer's  want  of  ordinary  care. 

Under  the  rules  of  the  conunon  law  an  employer  is  not  bound 
to  indemnify  his  employee  for  losses  suffered  by  the  latter  in 
consequence  of  the  ordinary  risks  of  the  business  in  which  he  is 
employed,  nor  in  consequence  of  the  negUgence  of  another  per- 

86 


36  APPLIED  BUSINESS  LAW 

son  engaged  by  the  same  employer  in  the  same  general  business, 
unless  the  negligence  arose  in  the  performance  of  a  duty  the  em- 
ployer owed  by  law  to  the  employee,  or  unless  the  employer 
neglected  to  use  ordinary  care  in  the  selection  of  the  employee 
who  caused  the  injury.  In  most  states  the  employer  is  not  an 
insurer  of  the  safety  of  the  employee,  but  this  rule  is  being 
changed  rapidly  so  that  an  increasing  number  of  states  now  re- 
quire some  form  of  insurance  for  the  indemnity  of  injured  em- 
ployees. 

20.  Obligations  of  employee.  One  who  for  pay  agrees 
to  serve  another  must  do  the  thing  agreed  and  must  use 
ordinary  care  and  diligence  therein  so  long  as  he  is  em- 
ployed. He  must  obey  the  instructions  of  his  employer 
concerning  the  service  on  which  he  is  engaged,  except 
where  such  obedience  is  impossible  or  unlawful  or  would 
impose  new  and  unreasonable  burdens  upon  him.  He 
must  perform  his  service  according  to  the  usage  of  the 
place  of  performance,  unless  otherwise  directed  by  the 
employer,  or  unless  it  is  impracticable,  or  clearly  injurious. 
He  is  bound  to  use  a  reasonable  degree  of  skill,  unless  the 
employer  had  notice  of  his  want  of  skill  before  employing 
him.  In  the  latter  case  he  is  bound  to  use  such  skill  as 
he  has,  otherwise  he  will  be  answerable  for  resulting  loss. 

A  promise  to  render  service  for  another  without  reward  is  not 
binding  upon  the  promisor  unless  he  actually  begins  its  perform- 
ance. If  he  induced  the  other  by  his  own  special  request  to  in- 
trust him  with  doing  the  service,  he  must  perform  it  fuUy  and 
with  reasonable  care  and  diligence.  In  all  other  cases  one  who 
undertakes  a  free  service  may  give  it  up  at  any  time. 

In  matters  connected  with  his  employment,  a  confidential 
employee  is  bound  to  act  in  the  highest  good  faith  toward  his 
employer  and  he  may  not  obtain  any  advantage  therein  over 
the  latter  by  the  shghtest  unfairness  of  any  kind. 


SERVICE  37 

21.  Master  and  servant.  A  servant  is  one  who  is 
employed  to  render  personal  service  to  his  employer, 
otherwise  than  in  the  pursuit  of  an  independent  calling, 
and  who  in  such  service  remains  entirely  under  the  control 
and  direction  of  the  master.  A  servant  is  presumed  to 
have  been  hired  for  such  length  of  time  as  the  parties 
adopt  for  the  estimation  of  wages.  A  hiring  at  a  monthly 
rate  is  presumed  to  be  for  one  month;  a  hiring  by  piece 
work,  for  no  specified  term.  In  the  absence  of  any  agree- 
ment as  to  the  term  of  service,  time  of  payment,  or  rate 
of  wages,  a  servant  is  presumed  to  be  hired  by  the  month 
at  a  monthly  rate  of  reasonable  wages,  to  be  paid  when 
the  services  are  performed. 

A  master  may  discharge  any  servant,  other  than  an  apprentice, 
whether  engaged  for  a  fixed  term  or  not:  (a)  If  he  is  guilty  of 
misconduct  in  the  course  of  his  service,  or  of  gross  immorality, 
though  unconnected  with  the  same;  or,  (b)  if,  being  employed 
about  the  person  of  the  master,  or  in  a  confidential  position,  the 
master  discovers  that  he  has  been  guilty  of  misconduct,  before 
or  after  the  conunencement  of  his  service,  of  such  a  nature  that 
if  the  master  had  known  it,  he  would  not  have  employed  him. 

22.  Termination  of  employment.  Every  employ- 
ment in  which  the  power  of  the  employee  is  not  coupled 
with  an  interest  is  terminated  by  notice  to  him  of:  (1) 
The  death  of  the  employer,  or  (2)  his  legal  incapacity  to 
contract;  and  employments  are  also  terminated  by,  (3) 
the  expiration  of  the  appointed  term,  (4)  the  extinction 
of  its  subject-matter,  (5)  the  death  of  the  employee,  or 
his  legal  or  physical  incapacity  to  act  as  such  employee. 

A  contract  for  service,  even  for  a  specified  term,  may  be 
ended  at  any  time  by  the  employer  for  willful  breach  of  duty  by 


88  APPLIED  BUSINESS  LAW 

the  employee  in  the  course  of  his  service,  or  in  case  of  his  habitual 
neglect  of  duty  or  incapacity  to  perform  it.  In  like  manner  it 
may  be  ended  by  the  employee  at  any  time  for  the  willful  or 
permanent  breach  of  the  contract  by  the  employer. 

An  employee  dismissed  for  good  cause,  is  not  entitled  to  pay 
for  services  rendered  since  the  last  day  upon  which  a  payment 
became  due  to  him  under  the  contract;  but  if  he  quits  the  service 
for  good  cause,  he  is  entitled  to  such  proportion  of  the  compensa- 
tion which  would  become  due  in  case  of  full  performance,  as  the 
services  which  he  rendered  bear  to  the  services  which  he  was  to 
render. 

An  employee,  unless  his  term  of  service  has  ended,  or  unless 
he  has  a  right  to  quit  at  any  time  without  notice,  must  continue 
his  service  after  notice  of  the  death  or  incapacity  of  his  employer, 
go  far  as  is  necessary  to  protect  from  loss  the  interests  of  the 
employer's  successor;  the  latter  must  pay  the  employee  for  his 
service  according  to  the  terms  of  the  original  contract.  An 
employmenth  aving  no  specific  term  may  be  ended  at  the  will 
of  either  party,  on  notice  to  the  other. 

QUESTIONS  FOR  REVIEW 

18.  Explain  the  nature  of  a  contract  of  emplo3Tnent.   Illustrate. 

19.  State  the  chief  obligations  of  the  employer.    What  is  the 

common-law  rule  with  reference  to  indemnity?     How 
changed  by  statute? 

20.  State  the  chief  obHgations  of  the  employee.   What  degree  of 

skill  is  required? 

21.  Explain  the  relation  of  master  and  servant.    How  does  it 

differ  from  that  of  agency?    Illustrate. 

22.  How  may  employments  be  terminated?    What  pay  may  an 

employee  recover  on  the  termination  of  the  employment? 

TEST  PROBLEMS  FOR  REVIEW 

1.  A  promises  to  take  care  of  B's  country  place  during  the  winter 
months  and  without  compensation.  Later  he  declines  to 
care  for  it.   Is  A  liable  to  B  for  breach  of  contract?   Why? 


SERVICE  3d 

2.  M  hires  X  at  sixty  dollars  a  month.    After  three  weeks  he 

discharges  X  without  cause.  X  demands  pay  for  a  full 
month.    May  he  recover? 

3.  M  tells  S  he  will  give  him  permanent  employment  at  one 

hundred  dollars  a  month.  At  the  end  of  a  week  he  dis- 
charges S  without  cause.    What  may  S  recover? 

4.  As  in  3,  except  unknown  to  M  and  prior  to  the  employment 

S  had  been  a  notorious  criminal.  What  effect  would  this 
have  on  the  rights  of  S? 

5.  S  is  employed  to  wash  windows  for  the  X  company.    While 

on  a  ladder,  D  a  deUvery  man  for  the  X  company  pushes 
the  ladder  as  he  passes  and  S  is  injured.  Is  the  X  company 
Uable  to  S? 

6.  M,  a  minor  and  a  trespasser,  goes  on  the  property  of  the  X 

railway  company  and  steals  a  ride  on  a  freight  train.  An 
employee  of  the  company  discovers  him  and  pushes  him 
ofif  while  the  train  is  moving  at  an  ordinary  rate  of  speed, 
and  M  is  injured.  Is  the  company  liable  for  the  act  of  its 
employee? 

7.  F  is  an  electrician  for  the  X  company,  and  S  is  the  superin- 

tendent of  the  company.  While  F  is  working  on  a  trans- 
mission gear,  S  negligently  turned  on  the  electric  current 
greatly  injuring  F.  Is  the  company  liable  to  F  for  his 
injury? 

8.  X  is  a  mechanic  working  in  the  shops  of  the  X  railway  com- 

pany, and,  unknown  to  the  superintendent,  he  is  an  aUen 
enemy.  He  pretends  to  repair  a  locomotive  boiler  but  in 
fact  he  leaves  it  in  a  dangerous  condition.  When  the 
engine  is  used  the  boiler  explodes  and  injures  the  engineer. 
Is  the  company  liable  in  damages  to  the  engineer  for  his 
injuries? 

9.  X  is  a  pilot  on  a  fishing  craft  operated  by  the  W  company. 

The  vessel  is  torpedoed  by  an  enemy  submarine  and  X  is 
seriously  injured.  Is  the  W  company  liable  in  damages  to 
.XT, 


CHAPTER  IV 

DEPOSITS,  LOANS,  AND  HIRING  OF  THINGS 

1.  Deposits 

23.  Kinds  of  deposits.  Deposits  of  things  are  for 
their  safekeeping  or  for  exchange.  They  are  of  two  kinds, 
voluntary  and  involuntary. 

A  voluntary  deposit  is  made  by  one  giving  to  another, 
with  the  free  consent  of  both,  the  possession  of  personal 
property  to  be  kept  for  the  benefit  of  the  owner  or  of 
some  other  person.  The  person  making  the  deposit  is 
variously  known  as  the  depositor,  bailor,  pledgor,  and 
the  like,  while  the  one  receiving  it  is  known  as  the  de- 
positary, bailee,  and  pledgee,  or  other  like  titles. 

An  involuntary  deposit  is  made,  (1)  by  the  accidental 
leaving  or  placing  of  personal  property  in  the  possession 
of  any  person,  without  negHgence  on  the  part  of  the 
owner;  or,  (2)  in  cases  of  fire,  shipwreck,  flood,  or  similar 
emergencies,  by  the  owner  of  personal  property  com- 
mitting it,  out  of  necessity,  to  the  care  of  another.  Such 
person  is  bound  to  take  charge  of  the  thing  deposited  if 
he  is  able  to  do  so. 

A  deposit  for  safekeeping  is  one  in  which  the  depositary  is 
bound  to  care  for  and  return  the  identical  thing  deposited. 

A  deposit  for  exchange  is  one  in  which  the  depositary  is  bound 
only  to  return  a  thing  corresponding  in  kind  to  that  which  is 
deposited.  It  transfers  the  title  to  the  thing  deposited  to  the 
depositary  and  creates  between  him  and  the  depositor  merely 
the  relation  of  debtor  and  creditor. 

40 


DEPOSITS,  LOANS,  AND  HIRING  OP  THINGS    41 

24.  Obligations  of  depositary.  The  person  receiving 
a  thing  for  safekeeping  is  bound  to  take  reasonable  care 
of  it  during  the  term  of  deposit.  What  is  reasonable  care 
will  depend  on  the  nature,  character,  and  value  of  the 
thing  deposited.  If  it  is  small,  fragile,  and  of  great  value, 
then  extreme  precaution  only  would  constitute  reason- 
able care. 

The  depositary  must,  on  demand,  deliver  the  thing  to 
the  person  for  whose  benefit  it  was  deposited  whether 
the  deposit  was  for  a  specified  time  or  not,  unless  (1)  he 
has  a  lien  on  the  thing  deposited,  or  (2)  has  been  forbidden 
or  prevented  from  returning  it  by  the  true  owner  of  the 
thing,  or  (3)  has  been  prevented  by  operation  of  the  law, 
and  has  given  notice  to  the  owner,  or  person  for  whose 
benefit  the  deposit  was  made,  of  any  proceedings  taken 
against  his  interest  which  would  excuse  the  depositary 
from  delivering  the  thing  to  him. 

The  depositary  is  bound  to  deliver  a  thing  deposited  with  him 
only  upon  demand,  and  this  is  true  even  where  the  deposit  was 
made  for  a  specific  time  and  the  term  of  deposit  has  expired. 
Demand  must  be  made,  and  when  delivery  is  due  it  must  be 
made  at  the  residence  or  place  of  business  of  the  depositary  as 
may  be  most  convenient  for  him. 

A  depositary  cannot  use  a  thing  deposited  or  permit  it  to  be 
used  for  any  purpose  without  the  consent  of  the  depositor.  He 
is  liable  for  any  damages  to  the  thing  deposited  during  his  wrong- 
ful use  of  it  unless  the  damage  would  inevitably  have  happened 
though  the  property  had  not  been  used. 

If  a  thing  is  lost  or  injured  during  its  deposit,  and  the  depos- 
itary refuses  to  inform  the  depositor  of  the  circumstances  under 
which  the  loss  or  injury  occurred,  to  the  extent  of  his  knowledge 
of  the  matter,  or  willfully  misrepresents  the  facts  to  him,  the 
depositary  is  presumed  to  have  caused  or  permitted  the  loss  and 


42  APPLIED  BUSINESS  LAW 

is  liable  therefor.-  But  his  liability  for  negligence  cannot  exceed 
the  amount  which  he  is  informed  by  the  depositor  the  thing  is 
worth,  or  in  fact  what  it  is  reasonably  worth. 

25.  Gratuitous  deposit.  Gratuitous  deposits  are 
those  for  which  the  depositary  receives  no  consideration 
beyond  the  mere  possession  of  the  thing  deposited.  An 
involuntary  deposit  is  of  this  class. 

A  gratuitous  depositary  must  use  sUght  care,  at  least,  for  the 
preservation  of  the  thing  deposited.  His  duties  cease,  (a)  upon 
his  restoring  the  thing  deposited  to  its  owner,  or  (2)  upon  reason- 
able notice  to  the  owner  to  remove  it,  or  to  an  involuntary  de- 
positor after  the  emergency  has  passed. 

26.  Deposits  for  keeping.  A  depositor  must  save  the 
depositary  harmless  from  loss,  (1)  for  all  damages  caused 
to  him  by  the  defects  or  vices  of  the  thing  deposited;  and 
(2)  for  all  expenses  necessarily  incurred  by  him  about 
the  thing,  other  than  such  as  are  involved  in  the  nature 
of  the  xmdertaking.  A  depositary  or  keeper  of  live  ani- 
mals must  provide  them  with  suitable  food  and  shelter, 
and  give  them  proper  care. 

27.  Storage.  A  deposit  for  hire  is  called  storage.  A 
depositary  for  hire  must  use  at  least  ordinary  care  for 
the  preservation  of  the  thing  deposited.  In  the  absence 
of  a  fixed  time,  a  deposit  may  be  terminated  by  the  de- 
positor at  any  time,  and  by  the  depositary  upon  reason- 
able notice. 

Where  there  is  an  agreed  time,  the  depositor  may  terminate 
the  deposit  by  paying  all  that  would  become  due  to  the  depos- 
itary in  case  of  the  deposit  continuing  for  the  fuU  time.  As  a 
rule,  a  depositor  is  liable  for  one  week's  hire  for  the  care  and  keep 
pf  live  stock  during  any  fraction  of  a  week,  and  for  half  a  month's 


DEPOSITS,  LOANS,  AND  HIRING  OF  THINGS    43 

hire  for  the  storage  of  any  other  property  during  any  fraction 
of  a  half  month. 

Storage  property  may  be  sold  in  open  market  to  satisfy  the 
depositary's  hen  for  storage  charges  due  and  unpaid  for  not  less 
than  one  year  at  the  time  of  the  sale,  except  in  the  case  of  perish- 
ables which  may  be  sold  at  any  time  that  emergency  may  require, 

28.  Warehousemen.  A  warehouseman  or  other  per- 
son doing  a  storage  business  must  not  issue  any  receipt 
for  goods  or  anything  of  value  to  any  person  claiming  to 
be  the  owner,  nor  to  any  person  as  security  for  any  in- 
debtedness, unless  such  goods  or  thing  has  been  received 
by  such  warehouseman  or  other  person  and  is  stored 
under  his  control  at  the  time  of  issuing  the  receipt;  nor 
must  any  second  receipt  for  any  such  property  be  issued 
while  a  former  receipt  for  it  or  any  part  of  it  is  outstand- 
ing and  uncanceled. 

Warehouse  receipts  for  property  stored  are  of  two 
classes:  (1)  Transferable  or  negotiable,  and  (2)  those 
not  transferable,  that  is,  non-'negotiable.  Under  the 
first  form  of  receipt  the  property  is  transferable  by  in- 
dorsement of  the  receipt  by  the  party  to  whose  order  it 
was  issued,  and  such  indorsement  is  a  valid  transfer  of 
the  property  represented  by  the  receipt,  and  it  may  be 
in  blank  or  to  the  order  of  another.  All  warehouse  re- 
ceipts must  distinctly  state  on  their  face  for  what  they 
are  issued,  with  a  description  of  the  goods  or  things, 
showing  the  quantity  and  kind,  and  the  rate  of  storage. 

Where  a  negotiable  receipt  is  issued  for  property,  neither  the 
person  issuing  it  nor  any  other  person  into  whose  care  the  prop- 
erty comes  must  deliver  any  part  of  the  property  without  in- 
dorsing on  the  back  of  the  receipt,  in  ink,  the  amount  and  date 
of  the  delivery;  nor  can  he  make  any  claim  or  demand  other  than 


44  APPLIED  BUSINESS  LAW 

that  expressed  on  the  face  of  the  receipt,  when  called  upon  to 
deliver  the  property  for  which  the  receipt  was  issued. 

If  a  receipt  is  not  negotiable,  it  must  have  printed  across  its 
face,  in  bold,  distinct  letters,  the  word  "Non-negotiable."  In 
the  case  of  such  receipt,  neither  the  person  issuing  it  nor  any 
other  in  whose  care  the  property  may  come  must  deliver  any 
part  of  it,  except  upon  the  written  order  of  the  person  to  whom 
the  receipt  was  issued. 

Warehousemen  and  other  persons  doing  a  general  storage  busi- 
ness are  not  responsible  for  any  loss  or  damage  to  property  by 
fire  while  in  their  custody,  if  they  exercise  reasonable  care  and 
diligence  for  its  protection  and  preservation. 

Persons  doing  a  general  storage  business  who  fraudulently 
issue  receipts  for  goods  not  received  or  otherwise  violate  the 
laws  regulating  the  conduct  of  the  storage  business  render  them- 
selves liable  to  fine  and  imprisonment  for  every  such  offense. 

2.  Loans 

29.  Loan  for  use.  A  loan  for  use  is  a  contract  by 
which  one  gives  another  the  possession  and  use  of  a  thing 
and  the  latter  agrees  to  return  the  same  thing  at  a  future 
time  without  pay  for  its  use.  The  title  to  the  thing  lent 
and  all  its  increase  during  the  term  of  the  loan  belongs  to 
the  lender. 

The  borrower  must  use  great  care  for  keeping  in  safety 
and  in  good  condition  the  thing  lent,  and  he  is  bound  to 
use  such  skill  in  its  care  as  he  has  caused  the  lender  to 
^cpect.  He  is  liable  for  all  losses  or  injuries  to  the  thing 
lent  which  are  caused  by  his  lack  of  care.  He  may  use 
the  thing  for  such  purposes  only  as  the  lender  might 
reasonably  expect  at  the  time  of  lending,  and  he  must 
not  part  with  it  to  a  third  person  without  the  consent  of 
the  lender.  Expenses  necessarily  incurred  to  preserve 
the  thing  borrowed  from  unexpected  and  unusual  injury, 


DEPOSITS,  LOANS,  AND  HIRING  OF  THINGS    45 

arising  from  no  fault  of  the  borrower,  must  be  borne  by 
the  lender. 

•The  lender  must  save  the  borrower  harmless  from  damage 
caused  by  defects  or  vices  in  the  thing  lent  of  which  he  had  knowl- 
edge at  the  time  of  lending  and  concealed  from  the  borrower. 
He  may  at  any  time  require  the  return  of  the  thing  lent  even 
though  it  was  lent  for  a  specified  time  or  purpose;  but  if,  on  the 
faith  of  the  agreement,  the  borrower  has  made  such  arrange- 
ments that  a  return  of  the  thing  before  the  end  of  the  period 
would  cause  him  loss,  exceeding  the  benefit  derived  from  the 
loan,  the  lender  must  indemnify  him  for  such  loss. 

Where  a  thing  is  lent  for  use  for  a  specified  time  or  purpose, 
it  must  be  returned  to  the  lender  without  demand  as  soon  as  the 
time  has  expired  or  the  purpose  has  been  accomplished.  In 
other  cases  it  need  not  be  returned  until  demand  has  been  made. 
The  borrower  must  return  the  thing  to  the  lender  at  the  place 
agreed  upon  by  the  parties  at  the  time  of  lending,  or  if  no  place 
was  agreed  upon,  then  at  the  place  where  it  was  at  the  time  of 
the  borrowing. 

30.  Loan  for  exchange.  A  loan  for  exchange  is  an 
agreement  by  which  one  delivers  a  thing  to  another  upon 
a  promise  to  return  a  similar  thing  to  the  lender  at  a 
future  time  and  without  pay  for  its  use.  The  title  to  the 
thing  thus  lent  is  transferred  to  the  borrower,  and  he 
must  bear  all  its  expenses  and  is  entitled  to  all  its  increase. 

A  loan  of  money  is  a  loan  for  exchange,  though  it  is  usually 
for  compensation.  The  lender  cannot  require  the  borrower  to 
discharge  the  loan  in  a  manner  or  at  a  time  different  from  that 
in  the  original  agreement. 

31.  Loan  of  money.  A  loan  of  money  is  a  contract 
by  which  one  delivers  a  sum  of  money  to  another  and  the 
latter  agrees  to  return  at  a  future  time  a  sum  equivalent 


46  APPLIED  BUSINESS  LAW 

to  that  which  he  borrowed.  The  borrower  must  repay 
the  loan  when  due  in  such  money  as  is  current  at  the 
time,  whether  it  is  worth  more  or  less  than  the  actual 
money  lent,  unless  there  is  an  express  agreement  to  the 
contrary,  as  for  payment  in  gold  coin. 

All  loans  of  money  are  presumed  to  be  upon  interest,  unless 
it  is  otherwise  provided  by  an  agreement  in  writing.  Interest 
is  the  rate  per  cent,  allowed  by  law,  or  a  lawful  rate  agreed  upon 
by  the  parties,  as  compensation  for  the  use  of  money.  When  a 
rate  of  interest  is  prescribed  by  law  or  by  agreement  of  the  par- 
ties without  specifying  the  period  of  time  by  which  such  rate  is 
to  be  calculated,  it  is  to  be  taken  as  an  annual  rate  (see  page  116, 
post). 

3  Hiring. 

32.  Hiring  in  general.  Hiring  is  a  contract  by  which 
one  gives  to  another  possession  and  use  of  a  thing,  other 
than  money,  for  reward,  and  the  latter  agrees  to  return 
the  same  to  the  former  at  a  future  time.  A  contract  of 
hiring  binds  the  owner  to  secure  to  the  hirer  the  quiet 
possession  of  the  thing  hired  during  the  term  of  the  hiring 
against  all  lawful  claims  of  others. 

The  hirer  of  a  thing  must  use  ordinary  care  for  its  preservation 
in  safety  and  in  good  condition.  He  must  repair  all  loss  or  in- 
jury to  the  thing  caused  by  his  want  of  ordinary  care.  When  a 
thing  is  let  for  a  particular  purpose,  the  hirer  must  not  use  it 
for  any  other  purpose.  If  he  does,  he  is  liable  to  the  owner  for 
all  damages  resulting  from  such  use,  or  the  owner  may  treat  the 
contract  as  rescinded  and  recover  the  thing  hired. 

The  owner  of  the  thing  hired  may  terminate  the  hiring  and  re- 
claim the  thing  before  the  end  of  the  term  agreed  upon,  (a) 
when  the  hirer  uses  or  permits  it  to  be  used  in  a  manner  con- 


DEPOSITS,  LOANS,  AND  HIRING  OF  THINGS    47 

trary  to  the  agreement,  or  (b)  when  the  hirer  does  not,  within 
a  reasonable  time  after  request  make  such  repairs  as  he  is  bound 
to  make  for  the  preservation  or  protection  of  the  thing  hired. 

The  hirer  may  end  the  hiring  before  the  end  of  the  time  agreed 
upon  (a)  when  the  owner  does  not,  within  a  reasonable  time 
after  request,  fulfill  his  obUgations  in  securing  to  the  hirer  the 
quiet  possession  of  the  thing  hired,  or  putting  it  in  good  condi- 
tion, or  (b)  when  the  greater  part  of  the  thing  hired,  or  the  part 
which  was  the  inducement  to  the  contract  of  hiring,  perishes 
from  any  cause  other  than  the  want  of  ordinary  care  of  the  hirer. 

Termination  of  hiring.  The  contract  of  hiring  a  thing 
ends:  (1)  At  the  end  of  the  tenn  agreed  upon;  (2)  by  the 
mutual  consent  of  the  parties;  (3)  by  the  hirer  acquiring 
lawful  title  to  the  thing  hired;  or  (4)  by  the  destruction 
of  the  thing  hired. 

33.  Hiring  personal  property.  One  who  lets  personal 
property  must  put  it  into  a  condition  fit  for  the  purpose 
for  which  he  lets  it,  deliver  it  to  the  hirer,  secure  to  him 
the  quiet  enjoyment  of  it  against  all  lawful  claimants, 
and  make  good  all  decrease  in  value  not  caused  by  the 
fault  of  the  hirer  and  not  the  natural  result  of  its  use. 

The  hirer  must  bear  all  such  expenses  concerning  the  thing 
as  might  naturally  be  expected  to  attend  it  during  its  use  by 
him.  All  other  expenses  must  be  borne  by  the  owner,  and  if  he 
fails  to  fulfill  his  obligations,  the  hirer  may,  after  notice  to  the 
owner,  expend  any  reasonable  amount  necessary  to  make  good 
the  owner's  default,  and  he  may  recover  such  amount  from  him. 

At  the  end  of  the  term  for  which  a  thing  is  hired,  the  hirer 
must  return  it  to  the  owner  at  the  place  named  by  the  parties 
at  the  time  of  the  hiring;  or,  if  no  place  was  agreed  upon,  then 
at  the  place  where  it  was  at  the  time  of  hiring. 

34.  Hiring  real  property.  A  contract  for  hiring  real 
property  is  known  as  a  lease  j  th^  consideration  paid  ig 


48  APPLIED  BUSINESS  LAW 

rent;  the  person  x)wning  or  letting  the  property  is  the  land- 
lord, while  the  person  to  whom  it  is  let  is  the  tenant,  thus 
creating  the  relation  of  landlord  and  tenant. 

All  tenure  or  hiring  of  real  property  arises  by  contract, 
express  or  implied.  A  lease  for  a  term  longer  than  one 
year  should  be  in  writing,  and  if  it  be  for  a  term  longer 
than  three  years  it  should  be  in  writing  and  recorded  in  a 
public  office  of  record  with  other  contracts  that  go  to  af- 
fect the  title  to  such  property. 

The  lessor  of  a  building  intended  for  human  habitation  does 
not,  by  the  rules  of  conunon  law,  warrant  that  it  is  fit  for  such 
purpose,  but  by  statutes  in  most  states  he  must  put  it  into  a 
condition  fit  for  such  habitation  and  repair  all  subsequent  dilap>- 
idations  which  render  it  untenantable,  unless  otherwise  agreed 
by  the  parties.  The  tenant  must  repair  all  deteriorations  or  in- 
juries caused  by  his  want  of  ordinary  care.  If  within  a  reason- 
able time  after  notice  of  need  of  repair  the  lessor  neglects  it,  the 
tenant  may  repair  if  the  costs  of  such  repairs  do  not  exceed  an 
amount  greater  than  one  month's  rent,  and  deduct  the  costs  of 
the  repairs  from  the  rent,  or  the  tenant  may  vacate  the  prem- 
ises, in  which  case  he  is  discharged  from  further  payment  of  rent. 

A  lease  of  real  property,  other  than  lodgings  and  dwelling 
houses,  is  presumed  to  be  for  a  term  of  one  year,  unless  other- 
wise agreed.  A  hiring  of  lodgings  or  a  dwelling  house  for  an  un- 
specified term  is  presumed  to  have  been  for  such  length  of  time 
as  the  parties  adopt  for  the  estimation  of  the  rent.  Thus,  a 
hiring  at  a  monthly  rate  of  rent  is  presumed  to  be  for  one  month. 

Where  the  tenant  of  real  property  remains  in  possession  after 
the  expiration  of  the  lease  and  the  lessor  accepts  rent  from  him, 
they  are  presumed  to  have  renewed  the  lease  on  the  same  terms 
and  for  the  same  time  not  exceeding  one  month  when  the  rent  is 
payable  monthly,  nor  in  any  case  exceeding  a  period  of  one  year. 

When  there  is  no  contract  or  usage  to  the  contrary,  rents  are 
payable  at  the  termination  of  the  holding  if  it  does  not  exceed 
one  year.    If  the  term  of  letting  be  by  the  day,  week,  month, 


DEPOSITS,  LOANS,  AND  HIRING  OF  THINGS    49 

quarter,  or  year,  rent  is  payable  at  the  expiration  of  the  agreed 
period  as  it  becomes  due,  unless  by  express  agreement  it  is  pay- 
able otherwise. 

At  common  law  a  tenant  may  assign  or  sublet  his  lease,  but 
by  statute  it  is  commonly  provided  that  an  assignment  or  trans- 
fer of  a  lease  to  a  stranger  by  a  tenant  is  void,  unless  it  is  made 
with  the  consent  of  the  landlord,  or  in  consequence  of  a  judgment 
of  court. 

In  most  states  a  tenant  who  receives  notice  of  any  proceeding 
to  recover  the  real  property  occupied  by  him,  or  recover  the  pos- 
session of  it,  must  immediately  inform  his  landlord  of  the  same, 
and  also  deliver  to  the  landlord  the  notice,  if  in  writing,  and  he 
is  responsible  to  the  landlord  for  all  damages  which  he  may  sus- 
tain by  reason  of  any  omission  to  inform  him  of  the  notice  or  to 
deliver  it  to  him. 

QUESTIONS  FOR  REVIEW 

23.  Classify  deposits.    Define  voluntary  deposit;  involuntary. 

Distinguish  between  deposits  for  safekeeping  and  for 
exchange. 

24.  Give  the  obligations  of  the  depositary. 

25.  Define  gratuitous  deposit.   Give  the  duties  of  the  depositary. 

26.  Give  the  duties  of  a  depositary  for  safekeeping;  of  the  depos- 

itor. 

27.  Define  storage.    What  are  the  duties  of  the  depositary  for 

hire? 

28.  Define  warehouseman.    State  his  duties.    Explain  the  forms 

and  purposes  of  the  receipts  issued. 

29.  Define  loan*    The  rights  of  the  lender.    The  duties  of  the 

borrower. 

30.  What  is  a  loan  for  exchange?    Who  has  title  to  the  thing 

loaned? 

31.  Define  loan  of  money;  interest.    What  is  the  legal  rate  in 

your  state? 

32.  Define  hiring.    State  the  duties  of  the  hirer;  of  the  owner. 

How  may  the  contract  of  hiring  be  terminated?    When 
does  it  regularly  end? 


50  APPLIED  BUSINESS  LAW 

33.  What  are  the  chief  duties  of  a  hirer  of  personal  property? 

34.  Define  lease;  rent;  landlord;  tenant;  tenure.    State  some 

of  the  rights  and  duties  of  the  landlord;  of  the  tenant. 
May  the  tenant  assign  or  sublet  the  premises? 

TEST  PROBLEMS 

1.  0  is  the  owner  of  a  chest  which  contains  $50,000  in  gold 

which  he  leaves  at  the  X  bank  to  be  locked  in  the  vaults 
for  safe  keeping.  The  bank  made  no  charge  for  this  serv- 
ice and  kept  the  chest,  which  was  locked,  in  the  same 
vault  with  its  own  money.  A  trusted  employee  broke  open 
the  chest,  stole  the  gold,  together  with  money  belonging 
to  the  bank  and  absconded. 
Question:  Is  the  X  bank  liable  to  0  for  the  amount  of  the 
loss? 

2.  H  hires  an  automobile  of  O  to  drive  to  A.    Instead  of  driving 

to  A  he  drove  to  X,  a  saloon  city  in  the  opposite  direction. 
While  he  was  in  X  the  automobile  was  stolen. 
Question:  Who  sustains  the  loss? 


.    CHAPTER  V 

CARRIAGE 

36.  Carriage  in  general.  A  contract  of  carriage  is  an 
agreement  to  transport  property,  persons,  or  messages, 
from  one  place  to  another.  Carrying  is  either  inland  or 
marine.  If  it  is  on  the  ocean  or  any  arm  of  the  sea,  it  is 
marine  carrying;  all  other  forms  of  carrying  are  said  to  be 
inland.  Carrying  may  be  gratuitous  or  for  reward.  When 
a  carrier  without  reward  begins  to  perform,  he  must  com- 
plete his  undertaking  in  like  manner  as  if  he  were  a  carrier 
for  reward,  unless  he  restores  the  person  or  thing  carried 
to  as  favorable  a  position  as  before  he  undertook  to  per- 
form. 

Examples:  C  promises  to  haul  O's  produce  to  market  with- 
out compensation.  Later  C  changes  his  mind  and  refuses  to  ac- 
cept or  transport  the  produce  for  0  at  the  time  appointed.  O 
has  no  remedy.    The  promise  was  a  mere  gratuity. 

If  C  had  taken  the  produce  into  his  custody  and  actually  be- 
gan to  transport  the  same,  he  would  be  obliged  to  complete  the 
undertaking,  otherwise  he  would  be  answerable  in  damages  to  O. 

36.  Common  carriers  in  general.  A  common  carrier 
is  one  who  offers  to  the  public  to  carry  persons,  property 
or  messages  for  reward.  He  must,  if  he  is  able  to  do  so,  ac- 
cept and  carry  whatever  is  offered  to  him,  at  a  reasonable 
time  and  place,  of  a  kind  he  undertakes  to  carry.  He  must 
not  give  preference  in  time,  quantity,  price,  or  otherwise, 
to  one  person  over  another,  but  he  may  give  preference  to 
the  United  States  and  to  the  State.    He  is  entitled  to  a 

51 


62  APPLIED  BUSINESS  LAW 

reasonable  compensation  for  his  services  and  no  more,  and 
he  may  require  to  be  paid  in  advance.  If  payment  is  re- 
fused, he  may  refuse  to  carry. 

The  obligations  of  a  common  carrier  cannot  be  limited  by 
general  notice  on  his  part,  but  he  may  limit  them  by  special 
contract.  He  cannot  by  any  agreement  made  in  anticipation 
thereof,  free  himself  from  liability  for  the  gross  negligence,  fraud, 
or  willful  wrong  of  himself  or  his  servants. 

37.  Carriage  of  persons.  A  carrier  of  persons  with- 
out reward  nlust  use  ordinary  care  and  diligence  for  their 
safety.  And  a  carrier  of  persons  for  hire  must  use  .the  ut- 
most care  and  diligence  for  their  safety,  must  provide 
everything  necessary  for  that  purpose,  and  must  exercise 
a  reasonable  degree  of  skill.  He  is  bound  to  provide  vehi- 
cles safe  and  fit  for  the  purposes  to  which  they  are  put, 
and  he  is  not  excused  for  default  in  this  respect  by  any  de- 
gree of  care.  He  must  not  overcrowd  or  overload  his  vehi- 
cle. He  must  give  to  passengers  all  such  accommodations 
as  are  usual  and  reasonable  and  he  must  treat  them  with 
civility,  and  give  them  a  reasonable  degree  of  attention. 
He  must  travel  at  a  reasonable  rate  of  speed  and  without 
unreasonable  delay  or  deviation  from  his  proper  route. 

38.  Common  carrier  of  persons.  A  common  carrier 
of  persons,  unless  his  vehicle  is  fitted  for  the  reception  of 
persons  exclusively,  must  receive  and  carry  a  reasonable 
amount  of  luggage  for  each  passenger  without  charge. 

Luggage  may  consist  of  whatever  the  passenger  takes  with 
him  for  his  personal  convenience  according  to  the  habits  or  wants 
of  the  particular  class  to  which  he  belongs.  The  habiUty  of  a 
carrier  for  luggage  received  by  him  is  the  same  as  that  of  a  com- 
mon carrier  of  property,  and  he  must  deliver  every  passenger's 
luggage,  whether  within  the  prescribed  weight  or  not,  imme- 


CARRIAGE  53 

diately  upon  the  arrival  of  the  passenger  at  his  destination.  The 
carrier  has  a  hen  on  the  luggage  of  a  passenger  for  the  payment 
of  such  fare  as  he  is  entitled  to  receive  from  him. 

A  common  carrier  of  persons  must  provide  a  sufficient 
number  of  vehicles  to  accommodate  all  the  passengers  who 
can  be  reasonably  expected  to  require  carriage  at  any  one 
time,  and  he  must  provide  every  passenger  with  a  seat. 

He  must  not  overload  a  vehicle  by  receiving  and  carrying  more 
passengers  than  its  rated  capacity  allows.  He  may  make  rules 
for  the  conduct  of  his  business,  and  he  may  require  passengers 
to  conform  to  them,  if  they  are  lawful,  reasonable,  and  uniform 
in  their  application. 

A  common  carrier  may  demand  the  fare  of  passengers  either 
at  starting  or  at  any  subsequent  time,  and  a  passenger  who  re- 
fuses to  pay  his  fare  or  to  conform  to  the  lawful  regulations  of  the 
carrier,  may  be  ejected  from  the  vehicle  by  the  carrier,  but  this 
must  be  done  with  as  little  violence  as  possible,  and  at  a  regular 
stopping  place  or  near  a  dwelling  house. 

39.  Carriage  of  property.  Property  carried  is  called 
freight;  the  reward  to  be  paid  for  carrying,  if  any,  is  called 
freightage,  or  freight  charges.  A  person  who  delivers  prop- 
erty to  be  carried  is  called  the  shipper  or  consignor,  and  the 
person  to  whom  it  is  to  be  delivered  is  called  the  consignee. 

A  carrier  of  property  for  reward  must  use  at  least  ordinary 
care  and  diligence  in  the  performance  of  all  his  duties,  and  a 
carrier  without  reward  must  use  at  least  slight  care  and  diligence. 

The  carrier  must  comply  with  the  directions  of  the  consignor 
or  consignee  to  the  same  extent  that  an  employee  is  bound  to 
comply  with  those  of  his  employer.  When  the  directions  of  a 
consignor  and  consignee  are  conflicting,  the  carrier  must  comply 
with  those  of  the  consignor  in  respect  to  all  matters  except  the 
delivery  of  the  freight.    In  this,  he  must  comply  with  the  direc- 


54  APPLIED  BUSINESS  LAW 

tions  of  the  consignee,  unless  the  consignor  has  forbidden  the 
carrier  to  obey  orders  from  the  consignee  inconsistent  with  his 
own. 

A  carrier  of  property  must  deliver  it  to  the  consignee  at 
the  place  named  in  the  bill  of  lading  and  in  the  manner 
usual  at  that  place.  If  there  is  no  usage  to  the  contrary, 
freight  must  be  delivered  as  follows:  (1)  If  carried  upon 
a  railway  owned  or  managed  by  the  carrier,  it  may  be  deliv- 
ered at  the  station  nearest  to  the  place  to  which  it  is  ad- 
dressed; (2)  if  carried  by  sea  from  a  foreign  country  it 
may  be  delivered  at  the  wharf  where  the  ship  moors, 
within  a  reasonable  distance  from  the  place  of  address; 
or,  if  there  is  no  wharf,  on  board  a  lighter  alongside  the 
ship;  or  (3)  in  other  cases,  it  must  be  delivered  to  the  con- 
signee or  his  agent,  personally,  if  either  can,  with  reason- 
able diligence,  be  found. 

If  for  any  reason  a  carrier  does  not  deliver  freight  to  the  con- 
signee or  his  agent,  personally,  he  must  give  notice  to  the  con- 
signee of  its  arrival,  and  keep  the  same  in  safety  upon  his  re- 
sponsibility as  a  warehouseman,  until  the  consignee  has  had  a 
reasonable  time  to  remove  it.  If  the  place  of  residence  or  busi- 
ness of  the  consignee  be  unknown  to  the  carrier,  he  may  give  no- 
tice by  letter  dropped  in  the  nearest  post  office. 

If  a  consignee  does  not  accept  and  remove  freight  within  a 
reasonable  time  after  the  carrier  has  fulfilled  his  obUgation  to 
deliver,  or  duly  offered  to  fulfill  the  same,  the  carrier  may  ex- 
onerate himself  from  further  liability  by  placing  the  freight  in  a 
suitable  warehouse  in  storage  on  account  of  the  consignee,  and 
giving  notice  to  him. 

40.  Common  carriers  of  property.  An  inland  common 
carrier  of  property,  unless  the  shipper  accompanies  and 
has  exclusive  control  of  it,  is  liable,  from  the  time  he  ac- 


CARRIAGE  55 

cepts  until  he  delivers  the  property,  for  loss  or  injury  of 
the  same  from  any  cause  whatever,  except:  (1)  An  in- 
herent vice,  defect,  or  weakness  of  the  property  itself; 
(2)  any  fraud  or  willful  wrong  of  the  shipper;  (3)  the  act 
of  a  public  enemy  of  the  United  States  or  of  the  State; 
(4)  the  act  of  the  law,  or  (5)  any  irresistible  superhuman 
cause;  and  the  carrier  is  liable  even  in  these  cases  if  his 
want  of  ordinary  care  exposes  the  property  to  the  cause 
of  the  loss. 

A  marine  carrier  is  liable  in  like  manner  as  an  inland  car- 
rier, except  for  loss  or  injury  caused  by  the  perils  of  the  sea  or 
fire.  The  perils  of  the  sea  are  from,  (a)  storms  and  waves,  (b) 
rocks,  shoals,  and  rapids,  (c)  other  obstacles,  though  of  human 
origin,  (d)  changes  of  climate,  (e)  the  confinement  necessary 
at  sea,  (f)  animals  peculiar  to  the  sea,  and  (g)  all  other  dangers 
peculiar  to  the  sea. 

A  consignor  of  valuables  must  declare  their  identity  and  value, 
otherwise  the  carrier  may  limit  his  liability  for  loss  or  injury  to 
such  property. 

If  freight  for  a  destination  beyond  that  of  the  carrier  who  first 
receives  it  is  lost  or  injured,  he  must  give  satisfactory  proof  to 
the  consignor  that  the  loss  or  injury  did  not  occur  while  the 
freight  was  in  his  charge,  or  he  will  be  liable  therefor.  By  ac- 
cepting freight  for  a  destination  beyond  his  line  the  receiving 
carrier  binds  himself,  unless  otherwise  agreed,  to  deliver  at  the 
end  of  his  route  to  some  other  connecting  carrier  carrying  to  the 
place  of  destination,  and  his  liabihty  ceases  upon  making  such 
delivery. 

41.  Bill  of  lading.  A  bill  of  lading  is  both  a  receipt 
and  a  form  of  contract  signed  by  a  carrier  or  his  agent,  de- 
scribing the  freight  so  as  to  identify  it,  stating  the  name  of 
the  consignor,  the  terms  of  the  contract  for  carriage,  and 
agreeing  or  directing  that  the  freight  be  delivered  to  the 


56  APPLIED  BUSINESS  LAW 

order  or  assigns  of  a  specified  person  at  a  specified  place. 
Bills  of  lading  are  of  two  kinds,  negotiable  or  transferable 
and  non-negotiable. 

All  title  to  the  goods  which  the  first  holder  of  a  negotiable  bill 
had  when  he  received  it,  passes  to  every  subsequent  indorsee 
thereof  in  good  faith  and  for  value,  in  the  ordinary  course  of 
business,  with  like  effect  and  in  like  manner  as  in  the  case  of  a 
bill  of  exchange  or  promissory  note.  When  a  bill  of  lading  is 
made  to  "bearer"  or  in  equivalent  terms,  a  simple  transfer  by 
deUverj"^  from  hand  to  hand  conveys  the  same  title  as  an  in- 
dorsement (see  sec.  72,  post;  also,  sec.  28,  ante). 

A  carrier  must  subscribe  and  deliver  to  the  consignor,  on  de- 
mand, a  reasonable  number  of  bills  of  lading  of  the  same  date  and 
tenor,  expressing  truly  the  original  contract  for  carriage,  and  if 
he  refuses  to  do  so,  the  consignor  may  recover  the  freight  and 
any  loss  or  damage  resulting  from  such  refusal.  DupUcate  bills 
must  be  plainly  marked  "Duplicate,"  otherwise  the  carrier  will 
be  liable  upon  each  one  not  so  marked  as  upon  an  original  bill. 

A  carrier  is  exonerated  from  liabiUty  for  freight  by  deUvery, 
in  good  faith,  to  any  holder  of  a  bill  of  lading  for  it,  properly 
indorsed  or  made  in  favor  of  the  bearer;  and  when  he  has  given 
a  bill  he  may  require  its  surrender  or  a  reasonable  indemnity 
against  claims  thereon,  before  delivering  the  goods  (see  sec.  28, 
ante). 

42.  Freight  charges.  A  carrier  may  require  his 
freightage  to  be  paid  in  advance  of  his  service  upon  re- 
ceiving the  goods;  but  if  he  does  not  demand  it  then,  he 
cannot  until  he  is  ready  to  deliver  the  same  at  destination. 
The  consignor  of  freight  is  presumed  to  be  liable  for  the 
freight  charges,  but  if  the  contract  between  him  and  the 
carrier  provides  that  the  consignee  shall  pay  it,  and  the 
carrier  allows  the  consignee  to  take  the  freight,  he  cannot 
afterward  recover  the  freight  charges  from  the  consignor. 


CARRIAGE  57 

The  consignee  is  liable  for  the  freight  charges  if  he  accepts 
the  freight  with  notice  of  the  intention  of  the  consignor 
that  he  should  pay  it. 

If  freight  charges  are  apportioned  by  a  bill  of  lading  or  other 
contract  between  a  shipper  and  the  carrier,  the  carrier  is  en- 
titled to  payment  according  to  the  apportionment  for  so  much  as 
he  delivers.  And,  if  a  part  of  the  freight  is  accepted  by  a  con- 
signee without  a  specific  objection  that  the  rest  is  not  delivered, 
the  freight  charges  must  be  apportioned  and  paid  as  to  that 
part,  though  not  apportioned  in  the  original  contract. 

Where  the  consignee  voluntarily  receives  freight  at  a  place 
short  of  destination  the  carrier  is  entitled  to  a  just  proportion 
of  the  freightage  according  to  distance.  If  the  carrier  being 
ready  and  willing,  offers  to  complete  the  transit  he  is  entitled  to 
full  freightage.  But  if  he  does  not  thus  offer  to  complete  the 
transit  and  the  consignee  receives  the  goods  only  from  necessity, 
the  carrier  is  not  entitled  to  any  freight  charges.  If  freight  is 
carried  further  or  more  expeditiously  than  was  agreed  upon  by 
the  parties,  the  carrier  is  not  entitled  to  additional  compensation, 
and  cannot  refuse  to  deliver  it  on  demand  of  the  consignee  at  the 
place  and  time  of  its  arrival. 

A  carrier  has  a  lien  for  freight  charges  on  all  freight  carried. 

43.  General  average.  A  carrier  by  water  may,  when 
in  case  of  extreme  peril  it  is  necessary  for  the  safety  of  the 
ship  or  cargo,  throw  overboard  or  otherwise  sacrifice  any 
or  all  the  cargo  or  appurtenances  of  the  ship.  This  throw- 
ing property  overboard  for  such  purposes  is  called  jettisoni 
and  the  loss  incurred  thereby  is  called  a  general  average 
loss.  A  jettison  must  begin  with  the  most  bulky  and  least 
valuable  articles  so  far  as  possible.  It  can  be  made  only 
by  authority  of  the  master  of  the  ship  except  in  case  of  his 
disability,  or  of  an  overruling  necessity,  when  it  may  be 
made  by  any  person. 


58  APPLIED  BUSINESS  LAW 

The  loss  incurred  by  a  jettison,  when  lawfully  made,  must  be 
borne  in  due  projwrtion  by  all  that  part  of  the  ship,  appurte- 
nances, freightage,  and  cargo  for  the  benefit  of  which  the  sacri- 
fice was  made,  as  well  as  by  the  owner  of  the  goods  sacrificed. 
The  proportions  in  which  a  general  average  loss  is  to  be  borne 
must  be  ascertained  by  an  adjustment  in  which  the  owner  of 
each  separate  interest  is  to  be  charged  with  such  proportion  of 
the  value  of  the  loss  as  the  value  of  his  part  of  the  property  af- 
fected bears  to  the  value  of  the  whole.  But  an  adjustment  made 
at  the  end  of  the  voyage,  if  valid  there,  is  valid  everywhere. 

In  estimating  values  for  the  purpose  of  a  general  average,  the 
ship  and  appurtenances  must  be  valued  as  at  the  end  of  the  voy- 
age, the  freightage  at  one-half  the  amount  due  on  deUvery,  and 
the  cargo  as  at  the  time  and  place  of  its  discharge,  adding,  in 
each  case,  the  amount  made  good  by  contribution. 

The  owner  of  goods  stowed  on  deck,  in  case  of  their  jettison, 
is  entitled  to  the  benefit  of  a  general  average  contribution  only 
in  case  it  is  usual  to  stow  such  goods  on  deck  upon  such  voyages. 

44.  Carriage  of  messages.  A  carrier  of  messages  for 
reward,  other  than  by  telegraph  or  telephone,  must  deliver 
them  at  the  place  to  which  they  are  addressed,  or  to  the 
person  for  whom  they  are  intended.  Telephone  and  tele- 
graph companies  must  deliver  messages  at  destination  and 
to  the  person  addressed  provided  the  place  or  person  for 
whom  they  are  intended  are  within  a  distance  of  two  miles 
from  the  main  oflfice  of  the  carrier  in  the  city  or  town  to 
which  the  messages  are  transmitted,  and  the  carrier  is  not 
required  in  making  the  delivery  to  pay  toll  or  ferriage  on 
his  route  of  delivery.  For  any  distance  beyond  one  mile 
from  such  office,  compensation  may  be  charged  for  a  mes- 
senger employed  by  the  carrier. 

A  carrier  of  messages  for  reward  must  use  great  care  and  dili- 
gence in  the  transmission  and  delivery  of  such  messages. 


CARRIAGE  59 

A  carrier  by  telegraph  must,  if  it  is  practicable,  transmit  every 
such  message  immediately  upon  its  receipt.  But  if  this  is  not 
practicable  and  several  messages  accumulate  upon  his  hands,  he 
must  transmit  them  in  the  following  order:  (a)  Messages  from 
public  agents  of  the  United  States,  or  of  the  State,  on  public 
business;  (b)  messages  intended  in  good  faith  for  immediate 
pubUcation  in  newspapers  and  not  for  any  secret  use;  (c)  mes- 
sages giving  information  relating  to  the  sickness  or  death  of  any 
person;  and  (d)  other  messages  in  the  order  in  which  they  were 
received.  Where  the  transmission  is  otherwise  than  by  tele- 
graph, the  common  carrier  of  messages  must  transmit  them  in 
the  order  in  which  he  received  them,  except  those  from  agents  of 
the  United  States  or  of  the  State  on  public  business  to  which  he 
must  always  give  priority.  Every  person  whose  message  is 
wrongfully  refused  or  postponed  is  entitled  to  recover  damages 
from  the  carrier. 

QUESTIONS  FOR  REVIEW 

35.  Define  carriage;  inland  carriage;  marine  carriage;  gratui- 

tous carrier. 

36.  Who  are  common  carriers?    State  some  of  his  rights  and 

duties. 

37.  What  are  some  of  the  rights  and  duties  of  carriers  of  persons? 

38.  State  some  of  the  rights  and  duties  of  common  carriers  of 

persons.  How  do  these  differ  from  those  of  a  private 
carrier? 

39.  Explain  the  meaning  of  freight;  freightage;  consignor;  con- 

signee. What  are  the  rules  governing  delivery  of  goods 
by  carriers?  When  must  the  carrier  give  notice  that  goods 
have  reached  destination?    When  may  he  store  the  goods? 

40.  What  five  circumstances  may  relieve  a  common  carrier  from 

liability  for  injury  or  loss  to  goods  he  is  carrying?  What 
circumstances  may  relieve  the  marine  carrier  from  Ua- 
bility  for  loss? 

41.  Explain  bill  of  lading;  the  classes  of  such  bills;  duplicate 

bills. 


60  APPLIED  BUSINESS  LAW 

42.  How  are  freight  charges  apportioned? 

43.  Explain  general  average;  jettison.    Give  the  rules  governing 

jettison. 

44.  What  are  the  chief  duties  of  carriers  of  messages?    Their 

rights? 


CHAPTER  VI 

SALES  OF  GOODS 

45.  Sales.  A  sale  is  a  contract  by  which  one  transfers 
to  another  an  interest  in  property  for  a  price  in  money. 
The  subject-matter  of  a  sale  must  be  some  form  of  prop- 
erty the  title  to  which  can  be  transferred  immediately  from 
seller  to  buyer.  This  gives  rise  to  a  present  sale,  which 
must  be  distinguished  from  a  mere  agreement  to  sell.  The 
latter  is  a  contract  by  which  one  engages  to  transfer  the 
title  to  a  certain  thing  to  another  who  agrees  to  buy  the 
same  from  him  for  an  agreed  or  ascertainable  price.  Any 
property  which,  if  in  existence,  might  be  the  subject  of 
sale,  may  be  the  subject  of  an  agreement  to  sell,  whether  in 
existence  or  not. 

Examples:  1.  A  agrees  to  buy  and  B  to  sell  all  the  present 
crop  of  oranges  now  on  B's  trees  for  an  agreed  consideration;  A 
is  to  pick  and  pack  the  fruit  within  the  next  ten  days..  This  is  a 
present  sale  and  title  passes  immediately  to  A,  and  risk  of  loss 
follows  title. 

2.  A  contracts  to  buy  and  B  to  sell  at  an  agreed  price  the  crop 
for  the  following  year  that  may  grow  on  these  same  orange  trees. 
If  the  parties  intend  this  as  a  "present  sale  of  future  goods," 
title  at  once  passes  to  A  and  all  risk  of  loss  rests  upon  him;  but 
if  they  merely  intend  this  to  be  a  contract  for  a  future  sale,  title 
will  not  pass  until  the  parties  intend  it  shall.  If  the  crop  is 
wholly  lost  or  destroyed  through  no  fault  of  either  party,  this 
will  discharge  the  contract.  Potts  Drug  Co.  v.  Benedict,  104 
Pacific  Reporter,  432  (1909). 

61 


62  APPLIED  BUSINESS  LAW 

46.  Statute  of  frauds.  No  sale  of  personal  property, 
or  agreement  of  sale,  for  a  price  of  five  hundred  dollars  or 
more  is  valid  unless:  (1)  The  agreement  or  some  note  or 
memorandum  of  it  be  in  writing  and  subscribed  by  the 
party  to  be  charged,  or  by  his  agent;  or  (2)  the  buyer  ac- 
cepts and  receives  part  of  the  thing  sold,  or  when  it  con- 
sists of  a  debt,  demand,  or  thing  recoverable  by  an  action 
or  suit,  part  of  the  evidence  thereof;  or  (3)  the  buyer,  at 
the  time  of  the  sale,  pays  a  part  of  the  price.  But  these 
provisions  do  not  apply  to  contracts  for  work,  labor,  and 
materials,  or  an  agreement  to  manufacture  a  thing  from 
materials  furnished  by  the  manufacturer  or  another. 

The  amount  of  the  sale  is  fixed  at  S50  or  over  in  most  states, 
following  the  provision  in  the  original  Statute  of  Frauds  en- 
acted by  Parliament  in  1676  (see  foot-note,  p.  10) ;  in  Connecti- 
cut, it  is  $100  or  over;  in  California,  $200  or  over;  in  Arizona, 
Idaho,  Maryland,  Massachusetts,  Michigan,  New  Jersey,  New 
York,  Montana,  Utah,  and  Wisconsin,  $500  or  over;  in  Ohio, 
$2500  or  over.  (The  imif orm  Sales  Act  provides  for  $500  or  over.) 

47.  Delivery.  Delivery  is  made  at  the  place  where 
the  property  is  at  the  time  of  the  sale  or  agreement  to  sell, 
or  if  it  is  not  then  in  existence,  it  is  deliverable  at  the  place 
where  it  Is  produced.  One  who  sells  personal  property 
must  bring  it  to  his  own  door,  or  other  convenient  place, 
for  its  acceptance  by  the  buyer,  but  further  transporta- 
tion is  at  the  risk  and  expense  of  the  buyer,  unless  other- 
wise agreed.  If  the  seller  agrees  to  send  the  thing  sold  to 
the  buyer,  he  must  follow  the  directions  of  the  latter  as  to 
the  manner  of  sending  it  or  he  will  be  answerable  for  any 
loss  arising  in  transportation.  If  he  follows  his  directions 
or,  in  the  absence  of  special  directions,  if  he  uses  ordinary 
care  in  forwarding  the  thing,  it  is  at  the  risk  of  the  buyer. 


SALES  OF  GOODS  63 

One  who  sells  personal  property,  whether  it  is  in  his  possession 
at  the  time  of  the  sale  or  not,  must  put  it  into  a  condition  fit 
for  deUvery  and  deliver  it  to  the  buyer  within  a  reasonable  time 
after  demand,  unless  he  has  a  lien  on  it.  Such  delivery  can 
be  offered  or  demanded  only  within  reasonable  hours  of  the 
day. 

After  personal  property  has  been  sold,  and  until  the  delivery 
is  completed,  the  seller  has  the  rights  and  obligations  of  a  depos- 
itary for  hire,  except  that  he  must  keep  the  property,  without 
charge,  until  the  buyer  has  had  a  reasonable  opportunity  to  re- 
move it.  But  if  a  buyer  of  personal  property  does  not  pay  for 
it  according  to  contract,  and  it  remains  in  the  possession  of  the 
seller  after  payment  is  due,  the  seller  may  rescind  the  sale  or  he 
may  enforce  his  lien  for  the  price  by  a  resale  of  the  goods,  by 
giving  actual  notice  to  the  buyer  of  the  time  and  place  at  which 
the  property  is  to  be  sold,  and  at  a  reasonable  time  before  the 
sale.    Morris  v.  Allen,  121  Pac.  Reporter,  690  (1912). 

48.  Rights  of  buyer.  The  buyer,  on  an  agreement 
for  sale  with  warranty,  has  a  right  to  inspect  the  thing  sold 
at  a  seasonable  time  before  accepting  it;  and,  if  the  seller 
refuses  to  permit  him  to  do  so,  he  may  rescind  the  contract. 
He  must  pay  the  price  of  the  goods  or  thing  sold  on  its 
delivery  and  take  it  away  within  a  reasonable  time  after 
the  seller  offers  to  deliver  it. 

The  breach  of  warranty  entitles  the  buyer  to  rescind  an  agree- 
ment for  sale,  but  not  an  executed  sale,  unless  the  warranty  was 
intended  by  the  parties  to  operate  as  a  condition. 

49.  Warranty.  A  warranty  is  a  contract  whereby  a 
seller  assures  to  a  buyer  the  existence  of  some  fact  affect- 
ing the  subject-matter  of  the  sale,  whether  past,  present, 
or  future.  Warranties  are  either  express  or  implied.  Ex- 
press warranties  are  those  arising  by  agreement  of  the 


64  APPLIED  BUSINESS  LAW 

parties;  implied  warranties  are  those  arising  by  operation 
of  the  law  whether  known  to  the  contracting  parties  or 
not.  The  law  reads  the  implied  warranties  into  the  agree- 
ment of  the  parties  and  thereby  makes  them  a'part  of  the 
agreement. 

Implied  warranties,  as  follows,  apply  to  contracts  of  sale 
or  agreements  to  sell: 

(1)  The  seller  warrants  that  he  has  a  good  and  unencumbered 
title  thereto. 

(2)  One  who  sells  or  agrees  to  sell  goods  by  sample,  thereby 
warrants  the  bulk  to  be  equal  to  the  sample. 

(3)  One  who  sells  or  agrees  to  sell  personal  property,  knowing 
that  the  buyer  relies  on  his  advice  or  judgment,  thereby  war- 
rants to  the  buyer  that  neither  the  seller  nor  any  agent  em- 
ployed by  him  in  the  transaction,  knows  the  existence  of  any 
fact  concerning  the  thing  sold  which  would  to  his  knowledge  de- 
stroy the  buyer's  inducement  to  buy. 

(4)  One  who  agrees  to  sell  merchandise  not  then  in  existence, 
thereby  warrants  that  it  shall  be  sound  and  merchantable  at  the 
place  of  production  contemplated  by  the  parties,  and  as  nearly 
so,  at  the  place  of  delivery,  as  can  be  secured  by  reasonable  care. 

(5)  One  who  sells  or  agrees  to  sell  an  article  of  his  own  manu- 
facture, thereby  warrants  it  to  be  free  from  any  latent  defect,  not 
disclosed  to  the  buyer,  arising  from  the  process  of  manufacture, 
and  also  that  neither  he  nor  his  agent  in  such  manufacture  has 
knowingly  used  improper  materials  therein. 

(6)  One  who  manufactures  an  article  under  an  order  for  a  par- 
ticular purpose,  warrants  by  the  sale  that  it  is  reasonably  fit 
for  that  purpose. 

(7)  One  who  sells  or  agrees  to  sell  merchandise  inaccessible 
to  the  examination  of  the  buyer,  thereby  warrants  that  it  is 
sound  and  merchantable. 

(8)  One  who  sells  or  agrees  to  sell  any  article  to  which  there 
is  affixed  or  attached  a  trade-mark,  thereby  warrants  that  mark 
to  be  genuine  and  lawfully  used. 


SALES  OF  GOODS  65 

(9)  One  who  sells  or  agrees  to  sell  any  article  to  which  there 
is  affixed  or  attached  a  statement  or  mark  to  express  the  qual- 
ity, or  quantity  thereof,  or  the  place  where  it  was,  in  whole  or 
in  part,  produced,  manufactured,  or  prepared,  thereby  war- 
rants the  truth  thereof. 

(10)  One  who  sells  or  agrees  to  sell  an  instrument  purporting 
to  bind  any  one  to  the  performance  of  an  act,  thereby  warrants 
that  he  has  no  knowledge  of  any  facts  which  tend  to  prove  it 
worthless,  such  as  the  insolvency  of  any  of  the  parties  thereto, 
where  that  is  material,  the  extinction  of  its  obligations  or  its 
invalidity  for  any  cause. 

(11)  One  who  makes  a  business  of  selling  provisions  for  do- 
mestic use  warrants  by  a  sale  thereof,  to  one  who  buys  for  actual 
consumption,  that  they  are  sound  and  wholesome. 

(12)  One  who  sells  the  good  will  of  a  business,  thereby  war- 
rants that  he  will  not  endeavor  to  draw  off  any  of  the  customers. 

(13)  Upon  a  judicial  sale,  the  only  implied  warranty  is  that 
the  seller  does  not  know  that  the  sale  will  not  pass  a  good  title 
to  the  property. 

(14)  In  a  contract  to  sell  or  a  sale  of  goods  by  description  there 
is  an  implied  warranty  that  the  goods  shall  correspond  with  the 
description. 

General  warranties  do  not  extend  to  defects  inconsistent 
therewith  of  which  the  buyer  was  then  aware,  or  which  were  then 
easily  discernible  by  him  without  the  exercise  of  peculiar  skill; 
but  it  extends  to  all  other  defects. 

60.  Auctions.  A  sale  by  auction  is  a  sale  by  public 
outcry  to  the  highest  bidder.  It  is  complete  when  the 
auctioneer  publicly  announces,  by  the  fall  of  his  hammer, 
or  in  any  other  customary  manner,  that  the  thing  is 
sold.  Until  the  fall  of  the  hammer  any  bidder  may  with- 
draw his  bid,  if  he  does  so  in  a  way  reasonably  suffi- 
cient to  bring  it  to  the  notice  of  the  auctioneer. 

When  a  sale  is  made  at  auction  upon  published  conditions, 


66  APPLIED  BUSINESS  LAW 

written  or  printed,  such  conditions  cannot  be  modified  by  any 
oral  declaration  of  the  auctioneer,  except  so  far  as  they  are  for 
his  own  benefit. 

By-bidding  at  an  auction  is  a  fraud  upon  the  rights  of  the 
buyer  which  entitles  him  to  rescind  his  purchase  upon  discover- 
ing the  fraud. 

When  property  is  sold  by  auction,  an  entry  made  by  the  auc- 
tioneer, in  his  sales  book  at  the  time  of  the  sale,  specifying  the 
name  of  the  person  for  whom  he  sells,  the  thing  sold,  the  price, 
the  terms  of  the  sale,  and  the  name  of  the  buyer,  binds  both  the 
parties  in  the  same  manner  as  if  made  by  themselves  (see  sec. 
46;  16;  also  p.  10,  ante). 

51.  Exchange.  Exchange  or  barter  is  a  contract  by 
which  the  parties  mutually  give,  or  agree  to  give,  one 
thing  for  another,  neither  thing  being  money  or  valued 
at  a  price  in  money. 

The  rules  governing  contracts  of  sale  apply  to  all  exchanges 
in  which  the  value  of  the  thing  to  be  given  by  either  party  is  five 
hundred  dollars  or  more  (see  sec.  46,  ante).  Each  party  has  the 
rights  and  obligations  of  a  seller  as  to  the  thing  which  he  gives, 
and  of  a  buyer  as  to  that  which  he  receives. 

QUESTIONS  FOR  REVIEW 

45.  Give  all  the  elements  of  a  vaUd  contract  of  sale.    Explain 

what  is  meant  by  a  present  sale;  agreement  to  sell;  future 
goods. 

46.  State  the  provisions  of  the  statute  of  frauds. 

47.  Define  delivery.    Where  must  it  be  made?    What  are  the 

duties  and  Habilities  of  the  seller  who  agrees  to  forward 
the  thing  sold?  Where  goods  have  been  sold  and  title 
passed  to  the  buyer,  what  are  the  rights  and  duties  of  the 
seller? 

48.  State  some  rights  of  the  buyer.    What  are  his  rights  upon 

a  breach  of  warranty  in  an  executed  sale?  In  an  agree- 
ment to  ?ell? 


SALES  OP  GOODS  67 

49.  Define  warranty;  express  warranty;  implied  warranty.   Give 

some  of  the  more  important  of  the  implied  warranties. 
What  is  the  effect  of  a  general  warranty? 

50.  Define  auction.    When  is  the  contract  of  sale  at  an  auction 

complete? 

51.  Define  exchange.    What  rules  govern  in  contracts  of  ex- 

change or  barter? 


CHAPTER  VII 
PARTNERSHIP 

52.  In  general.  Partnership  is  the  association  of  two 
or  more  persons  for  the  purpose  of  carrying  on  business  as 
a  firm  and  dividing  the  profits.  A  partnership  can  be 
formed  only  by  the  consent  of  all  the  parties  concerned. 
Hence,  a  new  partner  can  be  admitted  into  a  partnership 
only  with  the  consent  of  every  existing  member  of  the  firm. 

53.  Partnership  property.  The  property  of  a  partner- 
ship consists  of  all  that  is  contributed  to  the  common  stock 
at  the  formation  of  the  partnership,  and  all  that  is  later 
acquired.  The  interest  of  each  member  of  a  partnership 
extends  to  every  portion  of  its  property.  The  share  of 
each  member  of  a  partnership  extends  to  every  portion 
of  its  property.  The  share  of  each  is  the  value  of  his  orig- 
inal contribution  increased  or  diminished  by  his  share  of 
the  profits  or  losses. 

In  the  absence  of  any  agreement  on  the  subject  the 
partners  share  equally  in  the  profits  and  losses  of  the  busi- 
ness, except  in  non-trading  partnerships  -vyhere  each  part- 
ner shares  in  the  profits  and  losses  in  proportion  to  the  in- 
terest he  holds.  An  agreement  to  share  the  profits  of  a 
business  implies  an  agreement  for  a  corresponding  division 
of  its  losses,  unless  it  is  otherwise  expressly  provided. 

Each  member  of  a  partnership  may  require  its  property  to  be 
applied  to  the  discharge  of  its  debts  and  he  has  a  lien  on  the  shares 
of  the  other  partners  for  this  purpose  and  for  the  pajmaent  of  the 
general  balance  if  any  is  due  him.   Property,  whether  real  or  per- 

68 


PARTNERSHIP  69 

sonal,  acquired  with  partnership  funds,  is  presumed  to  be  part- 
nership property. 

64.  Obligations  of  partners.  Partnership  relations 
are  confidential.  Each  partner  voluntarily  assumes  a  re- 
lation of  personal  confidence  toward  the  other.  In  all 
matters  connected  with  the  formation,  conduct,  dissolu- 
tion, and  liquidation  of  a  partnership,  every  partner  is 
bound  to  act  in  the  highest  good  faith  toward  his  copart- 
ners. He  may  not  obtain  any  advantage  over  them  in  the 
partnership  affairs  by  the  slightest  misrepresentation,  con- 
ceahnent,  or  adverse  act  of  any  kind. 

Each  partner  must  account  to  the  partnership  for  everjrthing 
that  he  receives  for  it,  and  he  is  entitled  to  be  repaid  for  every- 
thing that  he  properly  expends  for  its  benefit,  and  he  must  be 
saved  harmless  from  all  losses  and  risks  he  necessarily  incurs  on 
its  behalf.  He  is  not  entitled  to  pay  for  his  services  rendered  to 
the  partnership  except  by  special  agreement. 

55.  Renunciation  by  partner.  A  partner  may  free 
himself  from  all  future  liability  to  third  persons  on  ac- 
count of  the  partnership  by  renouncing,  in  good  faith, 
all  intention  to  share  in  its  future  profits.  He  must  give 
notice  to  such  third  persons  and  to  his  own  copartners  that 
he  has  made  such  renunciation  and  that,  so  far  as  may  be 
in  his  power,  he  dissolves  the  partnership  and  does  not 
intend  to  be  liable  on  account  of  it  for  the  future.  After 
such  notice  of  renunciation  has  been  given,  he  cannot 
claim  any  of  its  profits  and  his  copartners  may  proceed 
to  dissolve  the  partnership. 

56.  General  partnerships.  All  partnerships,  unless 
formed  in  accordance  with  the  law  concerning  special  or 
non-trading  partnerships,  and  all  special  partnerships  as 


70  APPLIED  BUSINESS  LAW 

regard  the  general  partners,  are  general  partnerships.  The 
decision  of  a  majority  of  the  members  of  a  general  part- 
nership, unless  otherwise  expressly  provided,  binds  it  in 
the  conduct  of  its  business. 

(1)  Powers  of  partners.  A  partner,  as  such,  has  no  au- 
thority to  do  any  of  the  following  acts  unless  his  copartners  have 
wholly  abandoned  the  business  to  him,  or  are  incapable  of  act- 
ing: (a)  To  make  an  assignment  of  the  partnership  property  or 
any  portion  thereof  to  a  creditor,  or  to  a  third  person  in  trust 
for  the  benefit  of  a  creditor  or  all  creditors;  (b)  to  dispose  of  the 
good  will  of  the  business;  (c)  to  dispose  of  the  whole  of  the  part- 
nership property  at  once  unless  it  consists  entirely  of  merchan- 
dise; (d)  to  do  any  act  which  would  make  it  impossible  to  carry 
on  the  ordinary  business  of  the  partnership;  (e)  to  confess  a 
judgment;  (f)  to  submit  a  partnership  claim  to  arbitration;  (g) 
to  do  any  other  act  not  within  the  scope  of  the  partnership. 

Every  general  partner  is  agent  for  the  partnership  in  the 
transaction  of  its  business  and  has  authority  to  do  whatever  is 
necessary  to  carry  on  such  business  in  the  ordinary  manner,  and 
for  this  purpose  he  may  bind  his  copartners.  But  a  partner  is 
not  bound  by  any  act  of  a  copartner  in  bad  faith  toward  him 
though  within  the  scope  of  the  partner's  powers,  except  in  favor 
of  persons  who  have  in  good  faith  parted  with  value  in  rehance 
on  such  act. 

(2)  Obligations  of  partners.  All  profits  made  by  a  general 
partner  in  the  course  of  any  business  usually  carried  on  by  the 
partnership  belong  to  the  firm.  A  general  partner  who  agrees 
to  give  his  personal  attention  to  the  business  of  the  partnership, 
may  not  engage  in  any  business  which  gives  him  an  interest  ad- 
verse to  that  of  the  partnership,  or  which  prevents  him  from 
giving  to  such  business  all  the  attention  which  would  be  advan- 
tageous to  it.    Otherwise  he  may  engage  in  any  separate  business. 

(3)  Liability  of  partners.  Every  general  partner  is  liable 
to  third  persons  for  all  the  obligations  of  the  partnership, 
jointly  with  his  copartners.  Any  person  permitting  himself  to 
be  represented  as  a  partner,  general  or  special,  is  liable  as  such 


PARTNERSHIP  71 

to  third  persons  who  on  the  faith  of  such  representation  give 
credit  to  the  partnership;  but  no  one  is  liable  as  a  partner  who 
is  not  such  in  fact  unless  he  is  held  out  as  a  partner. 

(4)  Termination  of  partnership.  Where  no  term  is  agreed 
on,  the  duration  of  a  general  partnership  continues  until  dis- 
solved by  a  partner  or  by  operation  of  law.  A  general  partner- 
ship is  dissolved:  (a)  By  lapse  of  the  time  limited  by  agreement 
for  its  duration;  (b)  by  the  express  will  of  any  partner,  if  there  is 
no  such  agreement;  (c)  by  the  death  of  a  partner;  (d)  by  a 
transfer  to  a  person,  not  a  partner,  of  the  interest  of  any  partner 
in  the  partnership  property;  (e)  by  war,  or  the  probihition  of 
commercial  intercourse  between  the  country  in  which  one  part- 
ner resides  and  that  in  which  another  resides;  or  (f)  by  a  judg- 
ment of  dissolution. 

A  general  partnership  may  be  dissolved,  as  to  a  particular 
partner,  by  the  expressed  will  of  such  partner  notwithstanding 
his  agreement  for  its  continuance,  but  he  is  liable  to  his  copart- 
ners for  any  damage  caused  to  them  unless  the  circumstances 
are  such  as  entitle  him  to  a  judgment  of  dissolution.  He  is  en- 
titled to  a  judgment  of  dissolution:  (a)  When  he,  or  another 
partner,  becomes  legally  incapable  of  contracting;  (b)  when 
another  partner  fails  to  perform  his  duties  under  the  agreement 
of  the  partnership,  or  is  guilty  of  serious  misconduct;  or,  (c)  when 
the  business  of  the  partnership  can  be  carried  on  only  at  a  loss. 

The  liability  of  a  general  partner  for  the  acts  of  his  copart- 
ners continues,  even  after  a  dissolution  of  the  partnership,  in 
favor  of  persons  who  have  had  dealings  with  and  given  credit  to 
the  partnership  during  its  existence,  until  they  have  had  per- 
sonal notice  of  the  dissolution;  and  in  favor  of  other  persons 
until  such  dissolution  has  been  advertised  in  a  newspaper  pub- 
lished in  every  county  where  the  partnership,  at  the  time  of  its 
dissolution,  had  a  place  of  business,  if  a  newspaper  is  there  pub- 
lished, to  the  extent  in  either  case  to  which  such  persons  part 
with  value  in  good  faith,  and  in  the  belief  that  such  partner  is 
still  a  member  of  the  firm. 

A  change  of  the  partnership  name,  which  plainly  indicates  the 
withdrawal  of  a  partner,  is  sufficient  notice  of  the  fact  of  such 


n  APPLIED  BUSINESS  LAW 

withdrawal  to  all  persons  to  whom  it  is  communicated;  but  a 
change  in  the  name,  which  does  not  contain  such  an  indication, 
is  not  notice  of  the  withdrawal  of  any  partner. 

(5)  Liquidation.  After  the  dissolution  of  a  partnership 
the  next  step  is  its  liquidation.  The  powers  and  duties  of  the 
partners  are,  in  the  case  of  a  general  partnership,  (a)  Any  mem- 
ber may  act  in  Uquidation  of  its  affairs,  except,  (b)  if  the  liqui- 
dation is  committed,  by  consent  of  all  the  partners,  to 
one  or  more  of  them,  the  others  have  no  right  to  act  therein; 
but  their  acts  are  valid  in  favor  of  persons  parting  with  value, 
in  good  faith,  upon  the  credit  thereof;  (c)  a  partner  authorized 
to  act  in  liquidation  may  collect,  compromise  any  claims  against 
it,  and  dispose  of  the  partnership  property;  and  (d)  a  partner 
authorized  to  act  in  liquidation  may  indorse,  in  the  name  of  the 
firm,  promissory  notes  or  other  obligations  held  by  the  partner- 
ship, for  the  purpose  of  collecting  the  same,  but  he  cannot  create 
any  new  obligation  in  its  name,  or  revive  a  debt  against  the  firm 
when  an  action  thereon  is  barred  under  the  provisions  of  the 
statute  of  limitations. 

(6)  Trade  name.  A  partnership  transacting  business 
under  a  trade  name,  or  a  designation  not  showing  the  names  of 
the  persons  interested  as  partners  in  such  business,  must  file 
with  the  clerk  of  the  county  in  which  its  principal  place  of  busi- 
ness is  located  a  certificate  stating  the  names  in  full  of  all  the 
members  of  such  partnership  and  their  places  of  residence,  and 
make  proper  publication  of  the  same  in  a  newspaper.  The  certif- 
icate filed  with  the  clerk  must  be  signed  by  the  partners,  and 
acknowledged  before  some  officer  authorized  to  take  acknowl- 
edgments. For  every  change  in  the  membership  of  the  partner- 
ship a  new  certificate  must  be  filed. 

57.  Special  partnerships.  A  special  partnership  may 
be  formed  by  two  or  more  persons  for  the  transaction  of 
any  business  except  banking  or  insurance.  It  may  con- 
sist of  one  or  more  persons  called  general  partners,  and 
one  or  more  called  special  partners.    Persons  desiring  to 


PARTNERSHIP  73 

form  a  special  partnership  must  severally  sign  a  certifi- 
cate stating:  (1)  The  name  under  which  the  partnership 
is  to  be  conducted;  (2)  the  general  nature  of  the  business 
intended  to  be  transacted;  (3)  the  names  of  all  the  part- 
ners, and  their  residences,  specifying  which  are  general 
and  which  are  special  partners;  (4)  the  amount  of  capital 
which  each  special  partner  has  contributed  to  the  common 
stock;  and  (5)  the  periods  at  which  such  partnership  will 
begin  and  end.  The  certificate  must  be  acknowledged  and 
ecorded  in  the  county  recorder's  ofiice,  and  accompany- 
ing it  there  must  be  an  affidavit  of  each  of  the  partners, 
stating  the  sum  he  contributed  and  that  it  has  been  ac- 
tually paid  into  the  business,  and  the  certificate,  or  a 
statement  of  its  substance,  must  be  published  in  a  news- 
paper for  a  required  time,  usually  four  weeks. 

A  renewal  or  continuance  of  a  special  partnership  must  be 
certified,  recorded,  verified,  and  published  in  the  same  manner 
as  upon  its  original  formation.  Until  these  steps  are  taken  all 
members  of  the  partnership  are  liable  as  general  partners. 

The  general  partners  only  have  authority  to  transact  the  busi- 
ness of  a  special  partnership,  but  a  special  partner  may  at  any 
time  investigate  the  affairs  of  the  partnership  and  advise  his 
partners  as  to  the  management.  The  general  partners  may  sue 
and  be  sued  alone,  in  the  same  manner  as  if  there  were  no  special 
partners. 

A  special  partner  cannot  under  any  circumstances  withdraw 
any  part  of  the  capital  invested  by  him  in  the  partnership  during 
its  continuance,  or  if  he  does  so,  he  thereby  becomes  liable  as  a 
general  partner. 

(1)  Liability  of  partners.  The  general  partners  in  a  special 
partnership  are  individually  Uable  for  the  debts  of  the  partner- 
ship in  the  same  manner  and  to  the  same  extent  as  partners  in  a 
general  partnership. 


74  APPLIED  BUSINESS  LAW 

The  contributions  of  a  special  partner  to  the  capital  of  the  firm, 
and  the  increase  thereof,  is  Uable  for  its  debts,  but  he  is  not  other- 
wise liable  except,  (a)  if  he  has  willfully  made  or  permitted  a 
false  or  materially  defective  statement  in  the  certificate  of  the 
partnership,  the  affidavit  filed  therewith,  or  the  pubUshed  an- 
nouncement thereof,  he  is  Uable  as  a  general  partner,  to  all 
creditors  of  the  firm;  (b)  if  he  has  willfully  interfered  with  the 
conduct  of  the  business,  he  is  liable  in  like  manner;  (c)  if  he  has 
wilfully  joined  in  or  assented  to  an  act  whereby  a  special  part- 
ner has  withdrawn  any  part  of  the  capital  invested  by  him,  he  is 
liable  as  a  general  partner  to  all  creditors  of  the  firm. 

When  a  special  partner  has  unintentionally  done  any  of  the 
acts  above  mentioned,  he  is  liable  as  a  general  partner  to  any 
creditor  of  the  firm  who  has  been  actually  misled  by  such  act 
to  his  damage. 

(2)  Dissolution.  A  special  partnership  becomes  general 
if,  within  a  reasonable  time  after  any  partner  withdraws  from  it, 
or  any  new  partner  is  admitted  into  it,  or  a  change  is  made 
in  the  nature  of  the  business  or  in  its  name,  a  certificate  of  such 
fact  duly  verified  and  signed  by  one  or  more  of  the  partners,  is 
not  filed  with  the  county  recorder  with  whom  the  original  cer- 
tificate of  the  partnership  was  filed,  and  notice  thereof  pub- 
lished. 

A  special  partnership  is  subject  to  dissolution  in  the  same  man- 
ner as  a  general  partnership  (see  sec.  56-4),  except  that  no  dis- 
solution, by  the  act  of  the  partners,  is  complete  until  a  notice 
thereof  has  been  filed  and  recorded  in  the  office  of  the  county 
recorder  with  whom  the  original  certificate  was  recorded,  and 
published  once  in  each  week  for  four  successive  weeks  in  a  news- 
paper printed  in  each  county  where  the  partnership  has  a  place 
of  business. 

The  name  of  a  special  partner  must  not  be  used  in  the  firm 
name  of  the  partnership  unless  it  be  accompanied  with  the  word 
"Limited." 


PARTNERSHIP  75 


QUESTIONS  FOR  REVIEW 

52.  Give  the  essentials  of  a  contract  of  partnership. 

53.  What  constitutes  the  partnership  property?    How  are  the 

gains  and  losses  shared? 

54.  What  obUgations  rest  upon  every  member  of  a  general  part- 

nership?   May  a  partner  recover  pay  for  his  service  in  the 
partnership? 

55.  What  is  meant  by  renunciation?    Give  its  effect.    Does  a 

renunciation  affect  a  partner's  Uability  for  debts  already 
incurred? 

56.  State  some  of  the  powers  of  a  general  partner.    Some  lim- 

itations imposed  upon  general  partners.    How  may  a  gen- 
eral partnership  be  dissolved? 
67,  Discuss  special  partnership;  its  advantages  and  disadvan- 
tages. 

TEST  PROBLEMS  FOR  REVIEW 

1.  X,  Y,  Z  are  partners  in  the  X  grocerj'  business.    X  owns 
one-half,  Y  and  Z  one-fourth  each  of  the  capital  stock. 

(a)  X  without  any  special  authority  bought  a  large  bill  of 

groceries  from  the  T  company  and  gave  in  the 
firm's  name  a  note  for  the  amount  of  the  bill.  Is 
the  firm  liable? 

(b)  Y  without  special  authority  decided  to  put  in  a  drug 

department  and  so  he  bought  $1000  worth  of  drugs 
from  the  D  company.  Is  the  firm  bound  on  this  con- 
tract? 

(c)  Z  carelessly  drove  the  delivery  truck  against  A's  car- 

riage and  injured  A  and  damaged  the  carriage.  Is 
the  firm  liable  to  A? 

(d)  X  owned  a  large  interest  in  a  canning  factory,  unknown 

to  Y  and  Z,  and  he  purchased  vast  quantities  of  canned 
goods  from  this  factory,  to  his  own  personal  profit. 
What  are  the  rights  of  his  partners? 


76  APPLIED  BUSINESS  LAW 

(e)  Y,  on  learning  of  the  duplicity  of  X,  decides  that  the 
business  is  unsatisfactory  to  him  and  without  con- 
sulting his  partners  he  sells  the  entire  business  to  the 
B  company.    Is  this  contract  binding  on  the  firm? 

2.  P  and  Q  are  partners  in  the  shoe  business.    Each  agrees  to 

give  his  full  time  and  service  to  the  business  of  the  firm. 
P  becomes  ill  and  all  the  work  falls  upon  Q  for  several 
months.  At  the  end  of  the  year  Q  claims  compensation 
for  this  extra  work.    What  are  his  rights? 

3.  A,  B,  and  C  are  partners,  having  invested  $1000,  $2000,  and 

$3000  respectively.  At  the  end  of  the  first  year  there  is 
a  net  gain  of  $6000;  what  is  the  share  of  each?  At  the  end 
of  the  second  year  there  is  a  net  loss  of  $6000;  what  is  the 
loss  of  each? 


CHAPTER  VIII 

INSURANCE 

58.  In  general.  Insurance  is  a  contract  whereby  one 
undertakes  to  indemnify  another  against  loss,  damage,  or 
Uability  arising  from  an  unknown  or  uncertain  event.  Any 
uncertain  or  unknown  event,  whether  past  or  future,  which 
may  cause  loss  to  a  person  having  an  insurable  interest, 
or  create  a  liability  against  him,  may  be  insured  against; 
but  this  insurance  does  not  apply  to  lottery,  wagering,  or 
other  illegal  agreements. 

Insurance  is  classified  as  property,  personal,  and  credit  insur- 
ance. Under  the  property  group  falls  marine,  fire,  and  casualty 
insurance,  including  a  great  variety  of  risks.  Under  personal 
insurance  falls  life,  accident,  health,  and  various  other  risks  of 
a  personal  nature.  Under  credit  insurance  falls  guaranty,  sure- 
tyship, and  fidelity  insurance. 

1.  Property  Insurance 

69.  Parties.  The  person  who  undertakes  to  indem- 
nify another  by  a  contract  of  insurance  is  the  insurer,  and 
the  person  indemnified  is  known  as  the  insured.  As  a  rule, 
only  lawfully  authorized  corporations  can  undertake  con- 
tracts of  insurance  and  issue  policies  therefor.  Any  per- 
son except  a  public  enemy  may  be  insured. 

60.  Insurable  interest.  Every  interest  in  property 
or  liability  in  respect  to  it  which  might  be  the  subject  of 
loss  is  an  insurable  interest.  It  may  consist  in:  (1)  An 
existing  interest,  (2)  an  incomplete  interest  founded  on 

77 


78  APPLIED  BUSINESS  LAW 

an  existing  interest,  or  (3)  an  expectancy  coupled  with 
an  existing  interest  in  that  out  of  which  the  expectancy 
arises. 

A  mere  uncertain  or  expectant  interest  in  anything,  not 
founded  on  an  actual  right  to  the  thing,  nor  upon  any  valid  con- 
tract for  it,  is  not  insurable,  but  a  carrier  or  other  bailee  has  an 
insurable  interest  in  a  thing  held  by  him  as  such  to  the  extent 
of  its  value.  The  measure  of  an  insurable  interest  in  property 
is  the  extent  to  which  the  insured  might  be  damaged  by  loss  or 
injury  of  the  property. 

The  interest  insured  must  exist  when  the  insurance  takes  ef- 
fect, and  when  the  loss  occurs.  Since  the  sole  object  of  insurance 
is  to  save  whole  from  loss  the  insured,  it  follows  that  if  he  has  no 
insurable  interest,  the  contract  is  void. 

61.  The  policy.  An  oral  agreement  may  be  perfectly 
valid  as  a  contract  of  insurance,  but  such  contracts  are 
rare.  It  is  customary  to  have  the  contract  set  forth  in  a 
written  instrument;  this  is  called  a  policy  of  insurance. 
The  policy  must  specify:  (1)  The  parties  between  whom 
the  contract  is  made,  (2)  the  rate  of  premium,  (3)  the 
property  or  life  insured,  (4)  the  interest  of  the  insured  in 
property  insured  if  he  is  not  absolute  owner  of  it,  (5)  the 
risk  insured  against,  and  (6)  the  period  during  which  the 
insurance  is  to  run. 

A  policy  may  be  open,  valued,  or  running.  An  open  policy  is 
one  in  which  the  value  of  the  thing  insured  is  not  agreed  upon, 
but  is  left  to  be  ascertained  in  case  of  loss.  A  valued  poUcy  is  one 
which  expresses  on  its  face  an  agreement  that  the  thing  insured 
shall  be  valued  at  a  specified  sum.  A  running  policy  is  one  which 
contemplates  successive  insurances  and  which  provides  that  the 
object  of  the  policy  may  be  from  time  to  time  defined,  especially 
as  to  the  subjects  of  insurance,  by  additional  statements  or  in- 
dorsements. 


INSURANCE  79 

The  mere  transfer  of  a  thing  insured  does  not  transfer  the  pol- 
icy, but  suspends  it  until  the  same  person  becomes  the  owner  of 
both  the  policy  and  the  thing  insured;  but  a  policy  may  be  so 
framed  that  it  will  inure  to  the  benefit  of  whomsoever  may  be- 
come the  owner  of  the  interest  insured  during  the  continuance 
of  the  risk, 

62.  Premium.  Premium  is  the  consideration  paid 
for  insurance.  The  insurer  is  entitled  to  payment  of  the 
premium  as  soon  as  the  thing  insured  is  exposed  to  the 
peril  insured  against.  An  acknowledgment  in  a  policy  of 
the  receipt  of  premium  is  conclusive  evidence  of  its  pay- 
ment. 

The  insured  is  entitled  to  a  return  of  premium:  (a)  If  no  part 
of  his  interest  in  the  thing  insured  has  been  exposed  to  the  perils 
insured  against,  or  (b)  where  the  insurance  is  for  a  definite  time 
and  the  insured  surrenders  his  policy,  he  is  entitled  to  such  pro- 
portion of  the  premium  as  corresponds  to  the  unexpired  time, 
after  deducting  from  the  whole  premium  any  claim  for  loss  or 
damage  under  the  policy  which  has  previously  accrued.  But 
if  a  peril  insured  against  has  existed  and  the  insurer  has  been  lia- 
able  for  any  period,  however  short,  the  insured  is  not  entitled 
to  return  of  premium,  (c)  A  person  insured  is  entitled  to  a  re- 
turn of  the  premium  when  the  contract  is  voidable  on  account  of 
the  fraud  of  the  insurer  or  his  agent. 

63.  Representations.  A  representation  may  be  oral 
or  written,  and  it  may  be  made  at  the  same  time  with  issu- 
ing the  policy,  or  before  it.  A  representation  is  a  state- 
ment of  a  fact  or  what  purports  to  be  a  fact  material  to 
a  contract  of  insurance.  If  it  pertains  to  the  future  it  is 
deemed  to  be  a  promise,  unless  it  appear  that  it  was  merely 
a  statement  of  belief,  opinion,  or  expectation. 

If  the  facts  fail  to  correspond  substantially  with  a  represents- 


80  APPLIED  BUSINESS  LAW 

tion,  it  is  deemed  to  be  false  and  the  injured  party  may  rescind  the 
contract. 

64.  Concealment.  Concealment  is  the  neglect  to 
communicate  that  which  one  knows  and  ought  to  com- 
municate. Whether  intentional  or  unintentional,  it  en- 
titles the  injured  party  to  rescind  the  contract  of  in- 
surance. Each  party  to  a  contract  of  insurance  must 
communicate  to  the  other,  in  good  faith,  all  facts  within 
his  knowledge  which  are  or  which  he  believes  to  be  ma- 
terial to  the  contract  and  which  the  other  party  has  not 
the  means  of  ascertaining. 

One  party  need  not  communicate  to  the  other,  except  in 
answer  to  inquiries,  information  concerning  the  following  mat- 
ters: (a)  Those  which  the  party  knows,  (b)  those  which,  in  the 
exercise  of  ordinary  care,  the  party  ought  to  know,  and  of  which 
the  other  has  no  reason  to  suppose  him  ignorant,  (c)  those  of 
which  the  party  waives  communication,  (d)  those  which  prove 
or  tend  to  prove  the  existence  of  a  risk  excluded  by  a  warranty, 
and  which  are  not  otherwise  material,  and  (e)  those  which  re- 
late to  a  risk  excepted  from  the  policy,  and  which  are  not  other- 
wise material. 

Neither  party  is  bound  to  communicate  even  upon  inquiry 
information  of  his  own  judgment  or  express  an  opinion  upon  the 
matters  in  question. 

65.  Warranties.  A  warranty  may  be  express  or 
implied  and  it  may  relate  to  the  past,  the  present,  the 
future,  or  to  any  or  to  all  of  these.  A  statement  in  a  pol- 
icy of  a  matter  relating  to  the  person  or  thing  insured  or 
to  the  risk,  as  a  fact,  is  an  express  warranty.  A  state- 
ment in  a  policy  which  implies  that  it  is  intended  to  do  or 
not  to  do  a  thing  which  materially  affects  the  risk,  is  a 
warranty  th£».t  such  act  or  omission  shall  take  place.    Im- 


INSURANCE  81 

plied  warranties  are  those  which  are  made  a  part  of  the 
contract  of  insurance  by  operation  of  the  law. 

The  violation  of  a  material  warranty  or  other  material  pro- 
vision of  a  policy  on  the  part  of  either  party  to  it  entitles  the 
other  to  rescind. 

66.  Loss,  notice  of.  Notice  of  loss  must  be  given  to 
the  insurer  without  unnecessary  delay,  otherwise  he  will 
be  relieved  from  liability.  Delay  in  giving  notice  is  waived 
if  it  is  caused  by  any  act  of  the  insurer,  or  if  he  omits  to 
make  objection  promptly  upon  that  ground. 

When  preUminary  proof  of  loss  is  required  by  a  policy,  it  is 
sufficient  if  the  insured  give  the  best  evidence  which  he  has  at 
the  time,  and  he  is  not  bound  to  give  such  proof  as  would  be  nec- 
essary in  a  court  of  justice. 

The  insurer  is  not  liable  for  a  loss  caused  by  the  willful  act  of 
the  insured,  but  he  is  Uable  even  though  the  loss  arises  from  the 
negligence  of  the  insured,  or  of  his  agents  or  others. 

67.  Marine  insurance.  Marine  insurance  is  an  in- 
surance against  risks  connected  with  navigation,  to  which 
a  ship,  cargo,  freightage,  profits  or  other  insurable  in- 
surable interest  may  be  exposed  during  a  certain  voyage 
or  a  fixed  period  of  time. 

(1)  Insurable  interest.  The  owner  of  a  ship  has  in  all 
cases  an  insurable  interest  in  it,  even  when  it  has  been  chartered 
by  one  who  covenants  to  pay  him  its  value  in  case  of  loss.  The 
charterer  has  an  insurable  interest  in  the  ship,  and  one  who  has 
an  interest  in  the  thing  from  which  profits  are  expected,  whether 
the  ship,  freightage,  or  cargo,  has  an  insurable  interest. 

(2)  Concealment.  Willful  concealment  by  the  insured  of 
a  material  fact,  by  which  the  insurer  is  misled,  always  avoids  the 
poUcy.    In  roaring  insurance,  innoqent  ppncealro^nt  QV  non-di9- 


82  APPLIED  BUSINESS  LAW 

closure  has  the  saftie  effect.  Each  party  is  bound  to  communi- 
cate all  the  information  he  possesses  which  is  material  to  the 
risk,  except  as  already  stated  (see  sec.  64,  ante). 

In  marine  insurance  a  concealment  in  respect  to  any  of  the 
following  matters  does  not  avoid  the  entire  contract,  but  merely 
relieves  the  insurer  from  liability  for  loss  resulting  from  the  risk 
concealed:  (a)  The  national  character  of  the  insured,  (b)  the 
liability  of  the  thing  insured  to  capture  and  detention,  (c)  the 
liability  to  seizure  from  breach  of  foreign  laws  of  trade,  (d)  the 
want  of  necessary  documents,  and  (e)  the  use  of  false  and  simu- 
lated papers. 

(3)  Implied  warranties.  In  every  policy  of  marine  in- 
surance a  warranty  is  implied  that  the  ship  is  seaworthy.  A 
ship  is  seaworthy  when  reasonably  fit  to  perform  the  services 
and  to  encounter  the  ordinary  perils  of  the  voyage  contemplated 
by  the  parties  to  the  policy. 

When  the  perils  of  a  particular  voyage  are  insured  against, 
there  is  an  implied  warranty  against  unnecessary  deviation. 
Deviation  is  a  departure  from  the  course  of  the  voyage  insured 
or  an  unreasonable  delay  in  pursuing  the  voyage  or  the  com- 
mencement of  an  entirely  different  voyage. 

A  deviation  is  proper  and  excused:  (a)  When  caused  by  cir- 
cumstances over  which  neither  the  master  nor  the  owner  of  the 
ship  has  any  control,  (b)  when  necessary  to  comply  with  a  war- 
ranty, or  to  avoid  a  peril,  whether  insured  against  or  not,  (c) 
when  made  in  good  faith,  and  upon  reasonable  grounds  of  be- 
lief in  its  necessity  to  avoid  a  peril,  or  (d)  when  made  in  good 
faith  for  the  purpose  of  saving  human  life  or  relieving  another 
vessel  in  distress.  All  other  deviations  are  improper  and  the  in- 
surer is  not  liable  for  any  loss  arising  after  such  deviation. 

Where  the  nationaUty  or  neutrality  of  a  ship  is  expressly  war- 
ranted, it  is  implied  that  she  will  carry  the  documents  requisite 
to  show  such  nationality  or  neutrality  and  not  carry  any  docu- 
ments which  will  cast  reasonable  suspicion  on  these  points. 

(4)  Loss  and  abandonment.  Loss  may  be  total  or  partial, 
^d  total  loss  may  be  actual  or  constructive.    Actual  total  loss 


INSURANCE  83 

is  caused  by  any  event  which  entirely  deprives  the  owner  of  the 
possession  of  the  thing  insured  in  the  port  of  destination.  A  con- 
structive total  loss  is  one  which  gives  the  insured  a  right  to  aban- 
don the  thing  insured.  Abandonment  is  the  act  by  which  the 
insured  declares  to  the  insurer  that  he  gives  up  to  him  his  interest 
in  the  thing  insured.  Notice  of  abandonment  may  be  oral  or  in 
writing,  but  the  abandonment  must  be  absolute  and  unqual- 
ified. 

The  insured  may  abandon  the  thing  insured  and  recover  for 
a  total  loss  when  the  cause  of  the  loss  is  a  peril  insured  against 
and  when  the  injury,  damage,  or  loss  to  the  thing  insured  has 
reduced  its  value  more  than  one-half, 

(5)  Measure  of  loss.  Where  the  insured  has  some  interest 
at  risk  and  there  is  no  fraud  on  his  part,  a  valuation  in  a  poUcy  of 
marine  insurance  is  conclusive  between  the  parties  to  it  in  the 
adjustment  of  either  a  partial  or  a  total  loss.  The  insurer  is  lia- 
ble upon  a  partial  loss  only  for  such  proportion  of  the  amount 
insured  by  him  as  the  loss  bears  to  the  value  of  the  whole  in- 
terest of  the  insured  in  the  property  insured. 

Example:  The  interest  of  X  in  a  cargo  is  $10,000,  He  takes 
insurance  for  $5000.  There  is  a  loss  or  damage  to  his  interest  to 
the  amount  of  $2000.  He  may  recover  such  proportion  of  the 
amount  insured,  $10,000,  as  the  loss,  $2000,  bears  to  the  whole 
interest  of  the  insured,  $10,000,  or  one-fifth.  Therefore,  he  may 
recover  one-fifth  of  $5000,  or  $1000, 

68.  Fire  insurance.  Fire  insurance  is  indemnity 
against  loss  caused  by  fire.  If  there  is  no  valuation  in  the 
policy,  the  measure  of  indemnity  in  an  insurance  against 
fire  is  the  expense  at  the  time  the  loss  is  payable,  of  re- 
placing the  thing  lost  or  injured  in  the  condition  in  which 
it  was  at  the  time  of  the  loss.  A  valuation  in  the  policy 
is  conclusive  between  the  parties  to  it  in  the  adjustment 
of  either  a  partial  or  a  total  loss. 

Notice  of  loss  caused  by  fire  must  be  given  to  the  insurer  with- 


84  APPLIED  BUSINESS  LAW 

out  unnecessary  delay,  otherwise  he  will  be  relieved  from  liability. 
Delay  in  giving  notice  is  waived  if  it  is  caused  by  any  act  of  the 
insurer,  or  if  he  omits  to  make  objection  promptly  upon  that 
ground  (see  sec.  66,  ante). 

2.  Personal  Insurance 

69.  Personal  insurance.  Insurance  upon  a  life  may 
be  made  payable  on  the  death  of  the  person,  or  on  his  sur- 
viving a  specified  period,  or  periodically  so  long  as  he 
shall  live,  or  as  may  otherwise  be  agreed  by  the  parties. 

Every  person  has  an  insurable  interest  in  the  life  and 
health:  (1)  Of  himself,  (2)  of  any  person  on  whom  he  de- 
pends wholly  or  in  part  for  education  or  support,  (3)  of 
any  person  under  a  legal  obligation  to  him  for  the  pay- 
ment of  money  or  respecting  property  or  services,  of  which 
death  or  illness  might  delay  or  prevent  the  performance, 
and  (4)  of  any  person  upon  whose  life  any  estate  or  in- 
terest vested  in  him  depends. 

A  policy  of  insurance  upon  life  or  health  may  pass  by  transfer, 
will,  or  succession  to  any  person,  whether  he  has  an  insurable 
interest  or  not,  and  such  person  may  recover  upon  it  in  the  same 
manner  as  the  insured  might  have  recovered.  Notice  of  such 
transfer  is  not  necessary  unless  required  by  the  terms  of  the  pol- 
icy. 

3.  Credit  Insurance 

70.  Guaranty.  Guaranty  is  a  contract  to  answer  for 
the  debt,  default,  or  failure  of  another.  Any  person  com- 
petent to  make  contracts  may  become  a  guarantor,  and 
he  may  guaranty  the  debt  or  obligation  of  another  even 
without  the  knowledge  or  consent  of  the  principal  debtor. 
All  contracts  of  guaranty  must  be  in  writing  and  signed 


INSURANCE  85 

by  the  guarantor  or  by  his  agent  for  him  (p.  12,  ante). 
The  parties  to  the  guaranty  are  the  guarantor,  guarantee, 
and  principal. 

Where  a  guaranty  is  entered  into  at  the  same  time  with  the 
original  obligation,  or  with  the  acceptance  of  the  latter  by  the 
guarantee,  and  forms  with  that  obligation  a  part  of  the  consid- 
eration to  him,  no  other  consideration  need  exist.  In  all  other 
cases  there  must  be  a  consideration  distinct  from  that  of  the 
original  obligation. 

A  guaranty  relating  to  a  future  UabiUty  of  the  principal  under 
successive  transactions  which  either  continue  his  liability  or  from 
time  to  time  renew  it  after  it  has  been  satisfied,  is  called  a  con- 
tinuing guaranty.  It  may  be  revoked  at  any  time  by  the  guar- 
antor in  respect  to  future  transactions,  unless  there  is  a  continu- 
ing consideration  as  to  such  transactions  which  he  does  not 
renounce. 

A  mere  ofifer  to  guaranty  is  not  binding  until  notice  of  its  ac- 
ceptance is  communicated  by  the  guarantee  to  the  guarantor, 
but  an  absolute  guaranty  is  binding  without  notice  of  acceptance. 
A  guaranty  that  an  obhgation  is  good,  or  is  collectible,  imports 
that  the  debtor  is  solvent  and  that  the  demand  is  collectible  by 
the  usual  legal  proceedings  if  taken  with  reasonable  diligence. 

Liability  of  guarantor.  The  obligation  of  a  guarantor 
cannot  exceed  that  of  the  principal  debtor,  nor  in  other  respects 
be  more  burdensome;  neither  is  the  guarantor  liable  if  the  con- 
tract of  the  principal  is  unlawful,  but  he  is  Uable  notwithstanding 
any  personal  disabiUty  of  the  principal. 

A  guarantor  of  payment  or  performance  is  Uable  to  the  guar- 
antee immediately  upon  the  default  of  the  principal,  and  without 
demand  or  notice. 

Discharge  of  guarantor.  If  the  creditor  without  the  con- 
sent of  the  guarantor  alters  in  any  respect  the  original  obhga- 
tion of  the  principal,  or  if  the  remedies  or  rights  of  the  creditor 
are  in  any  way  impaired  or  suspended,  the  guarantor  is  relieved 
from  Uability  unless  indemnified  by  the  principal. 

Mere  delay  on  the  part  of  a  creditor  to  proceed  against  the 


86  APPLIED  BUSINESS  LAW 

principal  does  not  exonerate  a  guarantor,  and  he  is  not  exonerated 
by  the  discharge  of  his  principal  by  operation  of  law,  as  in  the 
case  of  infancy. 

71.  Suretyship.  A  surety  is  one  who  at  the  request 
of  another  and  for  the  purpose  of  securing  to  him  a  bene- 
fit, becomes  responsible  for  the  performance  by  the  latter 
of  some  act  in  favor  of  a  third  person,  or  pledges  property 
as  security  therefor.  If  he  appear  to  be  a  principal, 
whether  by  the  terms  of  a  written  instrument,  or  otherwise, 
he  may  show  that  he  is  in  fact  a  surety,  except  as  against 
persons  who  have  acted  on  the  faith  of  his  apparent  liabil- 
ity as  principal. 

Liability  of  surety.  A  surety  cannot  be  held  beyond  the 
express  terms  of  his  contract.  Performance  by  the  principal 
or  an  ofifer  of  performance  duly  made  exonerates  the  surety  from 
liability. 

A  surety  is  exonerated:  (a)  In  like  manner  as  a  guarantor; 
(b)  to  the  extent  to  which  he  is  prejudiced  by  any  act  of  the 
creditor  which  would  naturally  prove  injurious  to  the  remedies 
of  the  surety  or  inconsistent  with  his  rights,  or  v/hich  lessens  his 
security;  or,  (c)  to  the  extent  to  which  he  is  prejudiced  by  an 
omission  of  the  creditor  to  do  anything  when  required  by  the 
surety  which  it  is  his  duty  to  do. 

Rights  of  surety.  A  surety  has  all  the  rights  of  a  guarantor, 
whether  he  become  personally  responsible  or  not.  He  may  re- 
quire his  creditor  to  proceed  against  the  principal,  or  to  pursue 
any  other  remedy  in  his  power  which  the  surety  cannot  himself 
pursue,  and  if  in  such  case  the  creditor  fails  to  do  so,  the  surety 
is  exonerated  to  the  extent  to  which  he  is  prejudiced. 

If  a  surety  satisfies  the  principal  obligation  or  any  part  of  it, 
whether  with  or  without  legal  proceedings,  the  principal  is  bound 
to  reimburse  what  he  has  disbursed,  including  necessary  costs 
and  expenses;  but  the  surety  has  no  claim  for  reimbursement 


INSURANCE  87 

against  other  persons,  though  they  may  have  been  benefited  by 
his  act,  except  he  is  entitled  to  enforce  every  remedy  which  the 
creditor  has  against  the  principal  to  the  extent  of  reimbursing 
what  he  has  expended,  and  also  to  require  all  his  co-sureties 
to  contribute  thereto. 

The  surety  is  entitled  to  the  benefit  of  every  security  for  the 
performance  of  the  principal  obligation  held  by  the  creditor,  or 
by  a  co-surety  at  the  time  of  entering  into  the  contract  of  surety- 
ship, or  acquired  by  him  afterward,  whether  the  surety  was  aware 
of  the  security  or  not.  Whenever  property  of  a  surety  is  pledged 
with  prop)erty  of  the  principal,  the  surety  is  entitled  to  have  the 
property  of  the  principal  first  appUed  to  the  discharge  of  the 
obligation. 

QUESTIONS  FOR  REVIEW 

58.  Explain  the  purpose  of  insurance;  to  what  does  it  apply; 

how  classified? 

59.  Name  the  parties  to  a  policy  of  insurance.   Who  may  insure? 

Who  may  be  insured? 

60.  What  is  an  insurable  interest?    Why  is  it  necessary  for  the 

insured  to  have  such  interest?    What  is  a  "wagering  con- 
tract" ? 

61.  What  must  a  policy  specify?    What  is  meant  by  an  "open 

poHcy"  ?    A  "valued  policy"  ? 

62.  Define  premium.    When  is  it  returnable? 

63.  What  is  a  representation?    How  made? 

64.  Define  concealment.    What  is  its  effect? 

65.  Define  warranty,  in  insurance;  what  is  the  effect  of  a  breach 

of  warranty  in  insurance? 

66.  Discuss  loss,  and  notice  of  loss. 

67.  Define  marine  insurance.   Warranties  in.   What  is  the  efifect 

of  concealment? 

68.  Discuss  fire  insurance.    The  measure  of  loss. 

69.  Who  has  an  insurable  interest  in  a  life? 

70.  Define  guaranty;  suretyship;  distinguish  between  these  forms 

of  insurance. 


88  APPLIED  BUSINESS  LAW 

TEST  PROBLEMS  FOR  REVIEW 

1.  A  is  a  stockholder  in  a  steamship  company.    He  insures  a 

steamer  belonging  to  the  company  and  the  vessel  is  lost. 
The  insurance  company  refuses  to  pay  A  the  amount  of 
his  poUcy,  alleging  a  want  of  insurable  interest.  What  are 
A's  rights? 

2.  A  makes  a  loan  of  $1000  to  X  and  takes  a  mortgage  on  a 

building  belonging  to  X  for  the  amount  of  the  loan.  He 
then  takes  out  a  $2000  fire  insurance  on  the  building,  which 
later  is  destroyed  by  fire.    How  much  may  he  recover? 

3.  A  sister  insures  the  life  of  her  brother  who  has  gone  on  a 

gold  prospecting  journey  to  a  northern  goldfield.  The 
brother  dies  and  the  company  refuses  payment.  Is  the 
company  liable  on  the  poUcy? 

4.  O's  building  is  threatened  by  a  fire  in  an  adjoining  building. 

He  hastens  to  secure  insurance  on  his  property,  which 
later  is  destroyed  by  the  fire.  Is  the  company  liable  for  the 
amount  of  the  insurance? 

5.  O  owned  a  patent-right  which  he  leased  to  L,  with  the  ex- 

clusive privilege  of  using  it.  O  then  took  out  insurance  on 
L's  factory  in  order  to  protect  his  claim  for  royalties  for 
use  of  the  patent-right.  The  factory  burned  and  the  in- 
surance company  refused  payment  to  0,  alleging  a  want  of 
insurable  interest.    May  O  recover,  and  how  much? 


CHAPTER  IX 
NEGOTIABLE  PAPER 

72.  In  general.  A  negotiable  paper  is  a  written 
promise  or  order  for  the  payment  of  a  certain  sum  of 
money,  to  order  or  to  bearer,  which  can  be  transferred 
from  one  person  to  another  like  money  (see  sees.  28  and 
41,  ante). 

Characteristics  of  negotiable  paper.  At  common  law 
there  are  five  characteristics  that  distinguish  negotiable  contracts 
from  ordinary  contracts: 

First,  the  negotiable  contract  must  always  be  in  writing. 

Second,  the  holder  of  a  negotiable  contract  may  sue  in  his  own 
name  and  recover  on  the  obhgation,  though  this  feature  is  now 
commonly  given  to  ordinary  contracts  by  statutory  provision. 

Third,  the  maker  of  the  obligation  or  the  person  who  is  to  pay 
it  is  entitled  to  three  days  beyond  the  time  stated  in  the  writing 
in  which  to  make  payment,  but  these  days  of  grace  have  been 
pretty  generally  abolished  by  statute. 

Fourth,  there  is  always  a  presumption  that  something  of  value 
has  been  given  for  the  negotiable  paper,  though  this  presump- 
tion may  be  overcome  by  evidence  that  the  facts  are  otherwise. 

Fifth,  negotiable  paper  can  be  transferred  from  one  person  to 
another  like  money.  This  is  called  negotiabiUty,  and  it  is  the 
chief  characteristic  of  these  obUgations.  It  gives  the  holder  of 
the  paper  the  legal  title  to  the  amount  represented  by  it  so  he 
can  sue  in  his  own  name  and  recover  the  amount. 

73.  Kinds  of  negotiable  paper.  The  principal  kinds 
of  negotiable  paper  in  ordinary  use  are  notes,  checks,  and 
drafts  or  bills  of  exchange. 

89 


00  APPLIED  BUSINESS  LAW 

Promissory  notes.  These  are  written  promises  signed  by 
the  maker  who  promises  to  pay  a  certain  sum  of  money  to  a  per- 
son named  or  to  his  order  or  to  bearer.  If  no  time  of  payment  is 
specified,  the  note  is  payable  on  demand.  This  form  of  nego- 
tiable paper  includes  the  written  promises  of  persons,  of  banks, 
called  bank  notes,  and  certificates  of  deposit,  of  corporations, 
under  seal  and  known  as  bonds,  and  other  similar  paper. 

PROMISSORY  NOTE 

$400.00  Appomattox,  Va.,  May  5, 1919. 

Sixty  days  after  date  we  promise  to  pay  to  the 

order  of Asa  M.  White 

Four   Hundred Dollars,     At   the   First    National 

Bank  of  Lynchburg,  Va.     For  value  received,  with  interest  at 
six  per  cent  per  annum. 

Vinson  &  White 
No.  73  By 

The  parties  to  a  promissory  note  are  the  maker,  or  the 
person  who  makes  the  promise  to  pay,  signs  and  issues  the  note, 
the  payee  or  the  person  to  whom  the  money  is  payable.  Point 
out  the  maker  in  the  above  form  of  note;  the  payee.  Be  able  to 
tell  why  in  each  case. 

Checks.  A  check  is  a  written  order  for  the  payment  of 
a  certain  sum  of  money  to  a  person  named  therein,  or  to  his  order 
or  to  bearer,  drawn  on  a  bank  and  payable  on  demand. 

Checks  are  classed  as  bills  of  exchange  and  are  subject  to  all 
the  rules  concerning  bills  of  exchange,  except  that  the  drawer  and 
indorser  of  a  check  are  exonerated  by  delay  in  presentment  only 
to  the  extent  of  the  injury  they  suffer,  whereas  on  a  regular  bill 
of  exchange  the  drawer  and  indorsers  are  discharged  absolutely 
from  all  Uability  by  such  delay  in  presentment. 

The  holder  of  a  check  has  until  the  close  of  business  on  the 
following  business  day  after  its  receipt  in  which  to  make  pre- 
sentment. 


NEGOTIABLE  PAPER  91 

FORM  OF  CHECK 

No.   87  El  Centre,  CaUfomia, 

Dec.   24th,   1919. 
THE  FIRST  NATIONAL  BANK  OF 
El  Centre,  California 

Pay  to  the  order  of John  Doe Four 

hundred Dollars. 

Ross    &    Conscience. 
$400.00  By 


The  parties  to  a  check  are  the  drawer,  or  the  person  who 
writes  the  order  on  the  bank  and  signs  it,  the  drawee,  the  bank 
on  which  the  check  is  drawn  and  which  pays  the  amount  of  the 
check  to  the  payee,  or  the  person  in  whose  favor  the  check  is 
made,  or  to  his  order  or  to  the  bearer  as  the  case  may  be.  The 
above  check  should  be  presented  for  payment  before  the  close  of 
business  on  the  next  succeeding  business  day,  or  December  26th. 

The  assent  of  the  bank  to  the  payment  of  the  check  may  be 
indicated  by  writing  the  word  "Accepted  "  across  the  face  of  the 
check  with  the  signature  of  the  cashier  or  other  proper  officer 
of  the  bank.  When  this  is  done  the  paper  is  termed  a  "  Certified 
Check,"  and  the  bank  becomes  Uable  for  its  payment  as  upon 
its  own  promissory  note. 

Drafts.  A  draft  is  a  bill  of  exchange.  It  may  be  inland 
or  foreign.  In  any  event  it  is  a  written  order  from  one  person 
to  another  for  the  payment  of  a  certain  sum  of  money  to  a  third 
person,  or  order  or  to  bearer,  and  signed  by  the  drawer. 

The  parties  to  a  draft  are  the  drawer,  the  drawee,  and  the 
payee ;  they  correspond  with  the  same  parties  on  a  check. 

A  draft  is  said  to  be  an  inland  bill  of  exchange  when  it  is  be- 
tween parties  or  places  in  the  same  state;  it  is  a  foreign  bill  of 
exchange  when  it  is  between  parties  or  places  in  different  states 
or  countries. 


92  APPLIED  BUSINESS  LAW 

TIME  DRAFT,  OR  BILL  OF  EXCHANGE 

$700.00  Palo  Alto,  California, 

September  9, 1919. 

At  ten  days  sight Pay  to  the  order  of The 

Bank  of  Palo  Alto,  California Seven  Hun- 
dred   Dollars.   For  value  received,  and  charge  to  the 

account  of 

John   Doe. 
To  Dr.  Seth  Warren  Bush, 
No.  73c.  Parkersburg,  W.  Va. 

In  the  above  form  of  draft,  point  out  the  payee,  drawee,  and 
drawer,  and  rights  and  obligations  of  each. 

74.  Essentials  of  negotiable  paper.  In  order  to  be 
negotiable  commercial  paper  must  contain  certain  valid 
essentials  and  at  the  same  time  it  must  be  free  from  cer- 
tain conditions. 

The  essentials  are:  (1)  It  must  contain  an  uncon- 
ditional promise  or  order  in  writing.  A  promissory  note 
contains  a  promise;  a  check  or  draft  contains  an  order.  In 
every  case  these  must  be  unconditional  and  in  writing. 

(2)  It  must  be  to  pay  a  sum  certain  in  money.  A 
promise  to  pay  in  wheat  or  an  order  to  deliver  grain  would 
not  constitute  a  negotiable  contract  in  the  sense  of  com- 
mercial paper  (see  p.  43,  ante). 

(3)  It  must  be  payable  to  order  or  to  bearer.  The 
words  rendering  the  obligation  negotiable  are  "to  order," 
or  "to  bearer."  Without  these  the  instrument  would  be 
non-negotiable. 

(4)  It  must  be  payable  at  a  fixed  or  determinable 
future  time,  or  on  demand.  If  no  time  for  payment  be 
expressed,  the  paper  is  payable  on  demand. 


NEGOTIABLE  PAPER  93 

(5)  A  check  or  draft  must  indicate  the  drawee  witii 
reasonable  certainty.  The  drawee  is  the  person  on 
whom  the  paper  is  drawn  and  who  is  to  make  payment 
to  the  payee,  or  holder.  He  must  be  named  or  otherwise 
indicated  in  the  paper. 

(6)  A  negotiable  paper  must  be  signed  by  the  drawer 
or  maker.  A  note  is  signed  by  the  maker;  a  bill  of  ex- 
change is  signed  by  the  drawer. 

(7)  It  must  contain  no  condition  to  do  any  act  other 
than  pay  money.  But  the  paper  may  give  the  holder 
a  right  to  choose  whether  he  receive  payment  in  money  or 
elect  to  take  something  in  Ueu  of  money;  or  it  may  author- 
ize the  sale  of  collateral  securities  if  the  obligation  is  not 
paid  at  maturity,  the  proceeds  of  the  sale  to  be  appUed 
to  a  discharge  of  the  paper. 

(8)  Negotiable  paper  must  be  delivered  by  the  maker 
or  drawer  to  render  it  valid.  Want  of  delivery  operates 
as  an  absolute  defense  against  recovery  except  as  against 
a  holder  in  due  course.  In  the  latter  case,  if  the  paper  is 
complete  and  regular  on  its  face,  a  delivery  to  the  payee  is 
conclusively  presumed;  that  is,  no  evidence  will  be  ad- 
mitted to  show  that  the  facts  are  to  the  contrary. 

75.  Non-essentials.  There  are  some  elements  which 
should  appear  in  a  negotiable  instrument  but  their  ab- 
sence will  not  affect  its  negotiability. 

First,  the  paper  should  be  dated,  but  the  absence  of  a 
date  does  not  invalidate  the  obligation.  If  the  paper  is 
issued  undated,  the  true  date  may  be  inserted  by  the 
holder.  If  a  wrong  date  be  inserted  and  the  paper  ne- 
gotiated to  an  innocent  holder  for  value,  all  prior  parties 
are  bound  by  it  in  favor  of  the  holder. 


04  APPLIED  BUSINESS  LAW 

Second,  it  should  state  the  tune  of  payment.  When  no 
time  of  payment  is  stated  the  paper  is  payable  on  demand. 

Third,  the  paper  should  state  the  place  where  it  is  made 
and  where  it  is  payable,  but  the  omission  of  these  will  not 
affect  its  validity. 

Fourth,  it  is  customary  to  have  the  writing  recite  a  con- 
sideration, as  "for  value  received,"  or  some  equivalent 
expression,  but  this  is  not  an  essential  since  the  law  gives 
the  paper  a  presumptive  consideration. 

Fifth,  at  conmion  law  the  presence  of  a  seal  on  an  instru- 
ment renders  it  non-negotiable  unless  it  be  the  seal  of  a 
corporation,  in  which  case  the  seal  is  regarded  as  part  of 
the  signature  and,  therefore,  does  not  affect  the  nego- 
tiability of  the  instrument.  In  most  states  this  rule  ap- 
plies to  private  seals,  so  that  if  an  instrument  contains  a 
seal,  this  will  no  longer  render  it  non-negotiable. 

If  any  essential  of  a  negotiable  instrument  be  omitted  or  left 
blank,  the  person  to  whom  it  is  delivered  has  an  implied  author- 
ity to  fill  it  in  according  to  the  authority  given  and  he  is  put  upon 
inquiry  to  find  out  this  authority.  If  a  blank  is  filled  in  in  excess 
of  authority  and  the  instrument  negotiated  to  an  innocent  holder 
for  value,  all  prior  parties  are  liable  to  such  holder  according  to 
the  form  of  the  instrument  as  he  received  it. 

76.  Obligations  of  the  parties.      (1)  The  maker.    The 

obligation  of  the  maker  of  a  promissory  note  is  absolute 
and  unconditional.  His  liability  is  already  fixed  and  no 
further  steps  are  necessary.  Where  no  place  of  payment 
is  specified,  the  note  is  payable  at  the  residence  or  place 
of  business  of  the  maker,  or  wherever  he  may  be  found. 
Presentment  to  the  maker  at  maturity  for  payment  is 
necessary  in  order  to  hold  an  indorser  liable  but  not  to  fix 


NEGOTIABLE  PAPER  05 

the  liability  of  the  maker.  If  the  paper  is  by  its  terms  pay- 
able at  a  specified  place  and  the  maker  is  able  and  willing 
to  pay  it  there  at  maturity  this  is  equivalent  to  an  order 
of  payment  on  his  part. 

(2)  The  drawer.  The  obligation  of  the  drawer  is  not 
absolute  but  conditional.  It  rests  on  these  conditions: 
(a)  That  the  check,  draft,  or  bill  of  exchange,  be  duly  pre- 
sented to  the  drawee  for  acceptance  or  pajnnent,  as  the 
case  may  be,  and  (b)  if  acceptance  be  refused,  that  due 
notice  of  the  fact  be  given  him,  and  if  it  is  a  foreign  bill, 
that  it  be  duly  protested.  Strict  compliance  with  these 
conditions  is  necessary,  otherwise  the  drawer  will  be  re- 
lieved from  liability. 

(3)  The  acceptor.  The  obligation  of  a  drawee  is 
conditional  upon  his  acceptance.  He  is  not  bound  to  ac- 
cept, but  if  he  does,  he  is  bound  absolutely  by  the  accept- 
ance. When  a  check  is  accepted  it  is  usually  paid  at  once, 
though  it  may  be  "  certified,"  if  the  holder  requests  it.  Ac- 
ceptance of  a  draft  or  other  form  of  bill  of  exchange  is  usu- 
ally indicated  by  writing  the  word  "Accepted,"  with  the 
date  and  the  name  of  the  acceptor,  across  the  face  of  the 
paper.  The  holder  is  entitled  to  have  the  acceptance 
written  upon  the  face  of  the  paper,  though  an  acceptance 
upon  another  paper  is  valid  and  binds  the  acceptor  in  fa- 
vor of  all  who  take  the  paper  because  of  such  acceptance. 

Who  may  accept.  Only  the  drawee  named  in  the  paper 
may  accept  it  and  bind  all  the  parties  to  it.  If  he  dishonor  the 
paper  by  non-acceptance,  then  any  person  may  accept  it  for  the 
honor  of  any  other  whose  name  appears  on  the  paper. 

The  acceptor  for  honor  becomes  liable  to  the  holder  on  condi- 
t;ipi)  tbat  the  paper  be  again  presented  to  tjie  drawee  ^t  mat^ritj^ 


96  APPLIED  BUSINESS  LAW 

for  payment  and  if  it  be  not  then  paid,  the  paper  must  be  pro- 
tested and  notice  given  to  the  acceptor  for  honor. 

A  bill  may  contain  the  name  of  a  second  person  to  whom  re- 
sort may  be  had  in  "case  of  need,"  that  is,  if  the  first  does  not 
accept;  this  second  person  is  known  as  a  "referee  in  case  of  need." 

Kinds  of  acceptance.  There  are  two  forms  of  acceptance, 
general  and  qualified. 

A  general  acceptance  is  one  that  assents  fully  to  the  terms 
and  tenor  of  the  bill  and  agrees  to  pay  accordingly.  The  paper 
then  becomes  an  "acceptance,"  and  the  acceptor  is  liable  as  on 
a  promissory  note,  that  is,  his  liability  becomes  absolute. 

In  the  form  of  draft  given  on  page  92,  a  general  acceptance 
would  be:  "Accepted,  September  15,  1919.  Dr.  Seth  Warren 
Bush." 

The  date  of  acceptance  is  necessary  in  order  to  fix  the  date  of 
maturity  in  sight  drafts  which  are  payable  a  given  number  of 
days  after  sight. 

A  qualified  acceptance  is  one  that  does  not  fully  assent  to 
the  terms  and  tenor  of  the  bill.  The  qualification  may  be  as  to 
the  time,  the  place,  or  the  amount  of  the  bill.  An  acceptance 
may  name  a  particular  place  and  still  be  a  general  acceptance 
if  it  does  not  limit  payment  to  that  place  only. 

In  the  form  given  above,  the  following  would  be  a  limited  ac- 
ceptance: "Accepted,  September  15,  1919,  Payable  October  1, 
1919. .  .Dr.  Seth  Warren  Bush,"  or  "Accepted,  September  15, 
1919,  Payable  at  the  First  National  Bank  of  Parkersburg,  only 
. .  .Dr.  Seth  Warren  Bush." 

The  first  quaUfies  the  draft  as  to  time  of  payment;  the  second 
qualifies  the  acceptance  as  to  the  place  of  payment.  A  third 
form  might  qualify  the  amount  to  be  paid. 

A  qualified  acceptance  releases  the  drawer. 

Presentment  for  acceptance.  In  the  case  of  sight  paper, 
an  acceptance  is  necessary  in  order  to  fix  the  date  of  maturity. 
Presentment  for  acceptance  should  be  at  a  reasonable  hour  of  a 
jbusiness  day,  and  the  presentrnent  should  be  to  the  drawee  hy 


NEGOTIABLE  PAPER  97 

the  holder  or  his  agent.  The  drawee  has  twenty-four  hours  in 
which  to  decide  whether  he  will  accept  or  refuse  to  accept  the 
paper.  If  he  accepts,  he  thereby  adniits  the  genuineness  of  the 
drawer's  signature  and  his  then  right  to  draw. 

If  the  drawee's  place  of  business  or  residence  cannot,  with 
reasonable  diligence,  be  found,  presentment  for  acceptance  is 
excused,  and  the  paper  may  be  protested  for  non-acceptance. 

(4)  The  indorser.  One  who  writes  his  name  on  ne- 
gotiable paper,  otherwise  than  as  a  maker  or  acceptor,  and 
delivers  it  with  his  name  thereon  to  another  person,  is 
called  an  indorser,  and  his  act  is  an  indorsement. 

Every  indorser  of  negotiable  paper,  unless  his  indorse- 
ment be  qualified,  warrants  to  every  subsequent  holder: 

(a)  That  the  paper  is  in  all  respects  what  it  purports  to  be; 

(b)  that  he  has  a  good  title  to  it;  (c)  that  the  signatures 
of  all  prior  parties  are  binding  on  them;  and  (d)  that  if  the 
paper  be  dishonored,  he,  the  indorser,  will  upon  notice, 
pay  the  same  unless  excused  by  law. 

Elinds  of  indorsements.  An  indorsement  may  be  general 
or  special,  and  these  may  be  qualified  or  restrictive.  An  indorser 
may  qualify  his  indorsement  with  the  words,  "without  recourse," 
or  other  equivalent  words,  and  upon  such  indorsement  he  is  lia- 
ble on  the  first  three  warranties  given  above,  in  the  same  manner 
as  if  he  had  transferred  the  paper  without  indorsement. 

Illustrations:  On  a  negotiable  instrument  payable  to  John 
Doe,  the  indorsements  may  be  as  follows: 

(a)  General,  or  blank  indorsement,  "John  Doe,"  or  "Pay  to 

bearer,  John  Doe." 

(b)  General,    quahfied,    "Without    recourse. .  .John    Doe." 

(c)  Special,  "Pay  to  Richard  Roe,  or  order. .  .John  Doe." 

(d)  Special,  restrictive,  "Pay  Richard  Roe,  for  collection, 

John  Doe ..." 

(e)  Waiving  conditions,  "Waiving  protest. .  Joho  Doe..,'* 


98  APPLIED  BUSINESS  LAW 

An  irregular  indorser  is  one  who  indorses  out  of  the  usual  order 
of  indorsement,  as  where  one  indorses  before  the  payee.  Gen- 
erally an  irregular  indorser  is  one  who  lends  his  credit  to  the 
maker  or  other  party  to  the  paper  and  he  is  known  as  an  accom- 
modation indorser. 

77.  Holder  in  due  course.  A  holder  in  due  course  is 
one  who,  in  the  ordinary  course  of  business,  takes  negotia- 
ble paper  complete  and  regular  on  its  face,  before  it  is 
overdue,  in  good  faith  and  for  value.  He  acquires  an  ab- 
solute title  to  the  paper  so  that  it  is  valid  in  his  hands  not- 
withstanding any  defect  in  the  title  of  the  person  from 
whom  he  acquired  it. 

The  rights  of  a  holder  in  due  course  are  subject  to  the  absolute 
defenses:  Unauthorized  alteration,  forgery,  infancy,  want  of 
execution,  and  the  like;  but  they  are  superior  to  the  personal 
defenses,  such  as  fraud,  duress,  illegality,  and  the  like. 

Where  there  arises  serious  question  as  to  the  rights  of  the 
holder,  he  should  at  once  procure  the  service  of  a  good  lawyer  to 
protect  his  rights. 

78.  Maturity  of  paper.  If  the  paper  does  not  specify 
the  time  of  payment,  it  is  payable  on  demand.  When 
a  fixed  or  ascertainable  time  is  stated  in  the  paper,  it  ma- 
tures at  the  time  designated. 

It  is  provided  by  statute  in  most  states  that:  (1)  The  apparent 
maturity  of  a  paper  payable  at  sight  or  on  demand,  is  (a),  if  it 
bears  interest,  one  year  after  date;  or  (b)  if  it  does  not  bear  in- 
terest, ten  days  after  its  date  in  addition  to  the  time  necessary 
to  forward  it  for  acceptance. 

(2)  The  apparent  maturity  of  a  promissory  note  payable  on 
demand  is,  (a)  if  it  bears  interest,  one  year  after  its  date;  or, 
(b)  ^  it  does  pot  bear  interest,  six  months  ^.fter  its  (jlate.   If  the 


NEGOTIABLE  PAPER  99 

note  is  payable  a  certain  time  after  sight  or  demand,  such  time 
is  to  be  added  to  the  periods  just  mentioned. 

When  the  paper  falls  due  on  Sunday  or  a  holiday,  it  is  pay- 
able on  the  next  succeeding  business  day.  In  counting  time, 
omit  the  date  of  the  paper  and  include  the  date  of  pajonent. 

Illustration:  A  ten-day  note  dated  December  15th,  matures 
on  December  25th.  If  the  25th  falls  on  Saturday,  the  paper  will 
be  payable  on  the  following  Monday,  the  27th  of  December. 

79.  Dishonor  of  paper.  Negotiable  paper  is  dis- 
honored when  it  is  not  paid,  or  not  accepted  for  payment 
according  to  its  tenor,  on  presentment  for  that  purpose, 
or  without  presentment  where  that  is  excused.  Delay  in 
presentment  or  in  giving  notice  of  dishonor  is  excused 
when  caused  by  circumstances  which  the  party  could  not 
have  avoided  by  the  exercise  of  reasonable  care  and  dili- 
gence. 

Notice  of  dishonor  may  be  given,  (a)  by  a  holder  of  the 
paper,  or  (b)  by  any  party  to  the  paper  who  might  be  com- 
pelled to  pay  it  to  the  holder. 

The  notice  may  be  in  any  form  which  sufficiently  describes 
the  paper.  It  may  be  given,  (a)  by  dehvering  it  to  the  party 
to  be  charged,  personally  at  any  place,  or  (b)  by  delivering  it 
to  some  competent  person  at  the  place  of  residence  or  business 
of  such  party  who  is  apparently  acting  for  him,  or  (c)  by  mail- 
ing the  notice  properly  addressed,  postage  paid,  to  the  party 
liable. 

Notice  must  be  given  or  mailed  to  the  party  liable  on  or  before 
the  end  of  the  next  succeeding  business  day  after  the  dishonor 
of  the  paper. 

80.  Discharge  of  obligation.  The  obligation  of  a 
party  to  a  negotiable  paper  is  discharged:  (1)  In  Uke  man- 
ner with  that  of  parties  to  ordinary  contracts,  or  (2)  by 


100  APPLIED  BUSINESS  LAW 

payment  of  the  amount  due  on  the  paper,  at  or  after  its 
maturity,  in  good  faith  and  in  the  ordinary  course  of  busi- 
ness, to  any  person  having  actual  possession  of  the  paper 
and  entitled  by  its  terms  to  receive  payment. 

Where  the  paper  is  paid  by  an  indorser,  it  is  not  discharged, 
but  the  party  paying  it  preserves  all  his  rights  against  all  prior 
parties.  It  is  not  discharged  until  paid  by  the  party  primarily 
liable,  or  by  the  intentional  cancellation  of  the  paper  by  the 
holder,  or  by  some  other  act  which  would  have  the  effect  to  dis- 
charge an  ordinary  contract  for  the  payment  of  money. 

QUESTIONS  FOR  REVIEW 

72.  Explain  the  purpose  of  negotiable  paper.     Give  the  five 

common-law  characteristics  of  such  paper.  Which  of 
these  have  been  most  affected  by  statute  law?  Which  do 
you  regard  as  the  chief  characteristic?    Why? 

73.  Name  five  or  six  forms  of  negotiable  paper  with  which  you 

are  famihar.  Which  is  the  most  common  form?  Define 
promissory  note.  Illustrate.  Define  maker;  payee.  De- 
fine check;  drawee;  holder;  certified  check.  Define  draft; 
bill  of  exchange;  inland  bill;  foreign  bill.  Explain  the 
parties  to  a  bill  of  exchange. 

74.  State  the  essentials  of  negotiable  paper.    Which  form  of 

negotiable  paper  contains  a  promise?    Which  an  order? 

75.  Name  some  things  that  should  be  written  in  negotiable  paper 

but  the  absence  of  which  will  not  invalidate  the  paper. 

76.  What  are  the  obligations  of  a  maker?    Is  presentment  for 

payment  necessary  to  render  him  liable  on  his  note?  When 
is  it  necessary?  State  the  obhgations  of  the  drawer  of  a 
check  or  draft.  Give  the  obligations  of  an  acceptor.  Is 
he  bound  to  accept?  When  does  he  become  liable  and  to 
what  extent?  Define  general  acceptance;  qualified  ac- 
ceptance; illustrate  each.  Who  may  accept  bills  of  ex- 
change? When  is  presentment  for  acceptance  necessary? 
When  may  it  be  made;  where;  by  whom;  to  whom? 


NEGOTIABLE  PAPER  101 

What  does  the  acceptor  admit  by  his  acceptance?  When 
is  presentment  excused? 

77.  Define  a  holder  in  due  course.    What  are  his  rights?    What 

defenses  defeat  his  rights? 

78.  When  does  negotiable  paper  mature?    When  a  paper  falls 

due  on  Sunday  or  a  hoUday,  when  is  it  payable? 

79.  When  is  paper  said  to  be  dishonored?    When  will  delay  in 

presentment  or  in  giving  notice  of  dishonor  be  excused? 
How  may  notice  of  dishonor  be  given?  By  whom;  to 
whom;  in  what  length  of  time? 

80.  How  may  the  obUgations  of  a  party  liable  on  negotiable 

paper  be  discharged? 


TEST  PROBLEMS  FOR  REVIEW 

1.  "Pay  to  John  Doe,  or  order,  the  balance  due  on  my  ac- 

count.    (Signed)   Richard  Roe..."  Adressed  "To  John 
Dale." 
Is  this  in  form  a  negotiable  paper?    What  form?    Does 
it  contain  all  the  essentials  of  a  draft? 

2.  "On  demand,  I  promise  to  pay  to  John  Doe,  or  order,  fifty 

dollars,  or  deUver  to  him  fifty  bushels  of  wheat.    (Signed) 
John  Dale..." 
Is  this  valid  as  a  promissory  note?     Point  out  the  essentials 
present;  those  missing. 

3.  "El  Centro,  California,  May  7,  1919.    Ten  days  after  date 

I  promise  to  pay  to  John  Doe,  or  order,  fifty  dollars;  for 
value  received.  (Signed)  John  Rex ..." 
Is  this  a  valid  form  of  promissory  note?  It  was  written  out 
and  left  on  the  desk  of  John  Rex  and  later  was  stolen  from 
the  desk  by  X.  Is  the  maker  Uable  on  the  paper?  To 
whom?    Why? 

4.  M  signs  his  name  to  a  printed  form  of  promissory  note  and 

delivers  it  to  X  with  the  understanding  that  X  is  to  fill 
in  the  amount  which  corresponds  with  the  balance  on  ac- 
count from  M  to  X.   The  balance,  in  fact,  is  fifty  dollars, 


102  APPLIED  BUSINESS  LAW 

but  X  fraudulently  fills  in  the  blank  for  $500,  and  then 
negotiates  the  paper  to  H,  an  innocent  holder  for  value. 
May  H  recover  from  M?  To  what  extent?  Why? 
6.  A  note  written  in  the  usual  form,  "We  promise  to  pay,  etc.," 
is  signed  "J.  C,  President,  and  E.  H.  C,  Treasurer." 
Across  the  end  is  printed  "R.  I.  Co."  It  was  transferred 
by  the  payee  to  a  holder  in  due  course  who,  learning  that 
the  "R.  I.  Co."  was  insolvent,  sued  J.  C.  and  E.  H.  C. 
personally  for  the  face  of  the  note,  $7,500.00.  They  set 
up  the  defense  that  they  had  signed  as  officers  of  the  "R. 
I.  Co."  a  corporation,  and  therefore  they  were  not  per- 
sonally liable. 
Question:  May  H,  the  holder  in  due  course,  recover  against 
the  signers  of  the  note,  or  must  he  look  to  the  insolvent 
corporation  for  his  claim? 

6.  "I  promise  to  pay  to  the  order  of  X.  Y.  one  thousand  dollars, 

on  demand  without  days  of  grace,  after  his  marriage  to 
Z.    (Signed)  M." 
Is  this  a  negotiable  promissory  note? 

7.  A  note  payable  to  the  order  of  X  is  indorsed  by  him  "With- 

out recourse,  X."  It  later  develops  that  the  maker  is 
insolvent,  and  after  presentment  and  dishonor  by  the 
maker  and  notice  to  X,  the  holder,  H,  sues  X  for  the 
amount.    May  H  recover?    Why? 


CHAPTER  X 
REAL  PROPERTY 

81.  In  general.  Property  consists  of  anything  of 
which  there  may  be  ownership,  or  the  right  of  one  or  more 
persons  to  possess  and  use  it  to  the  exclusion  of  others. 
All  property  has  an  owner,  whether  that  owner  be  the 
State,  and  the  property  public,  or  an  individual,  and  the 
property  private. 

Property  is  either  real  or  personal.  Real  property 
consists  of:  (a)  land,  (b)  that  which  is  aflBxed  to  land, 
(c)  that  which  is  incidental  or  belongs  to  land,  and  (d) 
that  which  is  immovable  by  law. 

Land  is  the  solid  material  of  the  earth,  whatever  may  be 
the  ingredients  of  which  it  is  composed,  whether  rock,  soil,  water 
or  other  substance. 

A  fixture  is  a  thing  joined  to  land:  (a)  By  means  of  roots, 
as  in  the  case  of  trees,  vines,  or  shrubs;  (b)  by  being  imbedded 
in  it,  as  in  the  case  of  walls;  (c)  by  permanently  resting  upon  it, 
as  in  the  case  of  buildings;  (d)  by  being  permanently  attached 
to  what  is  permanent,  as  by  nails,  bolts,  cement,  and  the  like; 
(e)  by  adaptation  to  use  in  connection  with  what  is  permanent,  as 
the  keys  of  a  door. 

A  thing  is  incidental  or  appurtenant  to  land  when  it  is  by 
right  used  with  the  land  and  for  its  benefit,  as  a  road  or  right  of 
way. 

Real  property  is  governed  by  the  law  of  the  state  in  which 
it  is  located  except  where  the  title  is  in  the  United  States,  then 
it  is  governed  by  Federal  law,  as  in  the  case  of  national  pre- 
serves; miUtary  barracks,  or  forts. 

103 


104  APPLIED  BUSINESS  LAW 

82,  Estates  in  real  property.  Estates  in  real  property 
may  be  of  inheritance,  for  life,  for  years,  or  at  will. 

An  estate  of  inheritance,  if  unconditional,  is  a  fee  simple, 
the  largest  estate  that  may  be  owned  in  real  property;  but  lar- 
gest estate  does  not  necessarily  mean  the  most  valuable. 

A  life  estate  cannot  be  inherited;  it  ends  upon  the  death  of  the 
owner.   It  is  a  freehold  estate,  and  the  owner  is  a  freeholder. 

Estates  for  years  are  created  by  leases  and  end  upon  the  ex- 
piration of  the  time  specified  in  the  lease.  They  are  called  chat- 
tels real,  and  if  for  more  than  one  year,  they  must  be  created  by 
a  written  contract  known  as  a  lease. 

An  estate  at  will  is  a  chattel  interest  but  of  so  small  value 
that  it  cannot  be  sold  on  execution.  It  can  be  terminated  by  the 
landlord,  upon  giving  written  notice  to  the  tenant  at  least  one 
month  in  advance  of  the  time  at  which  he  is  required  to  remove 
from  the  premises. 

83.  Rights  of  owners.  The  owner  of  land  in  fee  has 
the  right  to  the  surface  and  to  everything  permanently 
situated  beneath,  upon,  or  above  it,  unless  this  right  is 
in  some  way  limited  by  the  conveyance  through  which 
he  acquired  title  to  the  land. 

The  owner  of  a  life  estate  may  use  the  land  in  the  same 
manner  as  the  owner  of  a  fee  simple,  except  that  he  must 
do  no  act  to  the  injury  of  the  inheritance,  as,  for  example, 
he  must  not  cut  historic  shade  trees. 

A  tenant  for  years  or  at  will  has  no  other  rights  to  the 
property  than  such  as  are  given  to  him  by  the  agreement 
or  lease  by  which  his  tenancy  is  acquired.  In  the  absence 
of  an  agreement,  unless  he  is  a  mere  wrongdoer  holding 
over,  he  may  occupy  the  buildings,  take  the  annual  prod- 
ucts of  the  soil,  and  work  mines  and  quarries  which  were 
open  at  the  commencement  of  his  tenancy.  He  must 
commit  no  act  of  waste  or  injury  to  the  estate. 


REAL  PROPERTY  105 

An  owner  of  land  bounded  by  a  road  or  street  is  presumed  to 
own  to  the  middle  of  the  way,  but  the  contrary  may  be  estab- 
lished by  evidence.  If  his  land  borders  upon  a  non-navigable  lake 
or  stream,  he  takes  to  the  middle  of  the  lake  or  stream;  if  it  bor- 
ders on  navigable  water,  the  owner  takes  to  low-water  mark  if 
there  is  no  tide,  and  to  the  ordinary  high-water  mark  if  there  is 
a  tide. 

An  owner  is  entitled  to  the  support  which  his  land  receives 
from  adjoining  land,  subject  to  the  right  of  the  adjoining  owner 
to  make  proper  and  usual  excavations  for  purposes  of  construc- 
tion, on  using  ordinary  care  and  skill  and  taking  reasonable 
precautions  to  sustain  the  land  of  the  other,  after  giving  previous 
reasonable  notice  of  his  intention  to  make  such  excavations. 

Trees  which  stand  on  the  boundary  line  of  adjoining  owners 
belong  to  them  in  common,  but  trees  whose  trunks  stand  wholly 
upon  the  land  of  one  owner  belong  exclusively  to  him,  although 
their  roots  grow  into  the  adjoining  land. 

84.  Obligations  of  owner.  The  owner  of  real  property 
must  use  it  in  such  a  way  that  he  will  not  unlawfully  in- 
terfere with  the  rights  of  others.  With  this  exception, 
the  owner  of  a  fee  simple  may  use  his  premises  as  he  may 
choose.  He  must  comply  with  state  law  and  city  ordi- 
nances (see  sec.  2,  ante). 

The  owner  of  a  life  estate  must  keep  the  buildings  and  fences 
in  repair  from  ordinary  waste,  and  he  must  pay  the  taxes  and 
other  annual  charges,  and  share  a  just  proportion  of  unusual 
assessments  which  benefit  the  whole  inheritance. 

Adjoining  owners  must  share  equally  the  expense  of  main- 
taining the  boundaries  and  landmarks  between  them.  The  cost 
of  division  fences  must  be  shared  equally  unless  one  of  the 
owners  chooses  to  let  his  land  lie  unfenced,  but  if  he  after- 
ward incloses  it,  he  must  pay  a  just  proportion  of  the  cost  of  the 
division  fence. 


106  APPLIED  BUSINESS  LAW 

85.  Title  to  real  property.  Title  is  the  means  by 
which  an  estate  in  real  property  is  held;  it  is  the  right  of 
ownership.  Title  to  real  property  may  be  acquired  in  two 
ways,  by  purchase  or  by  inheritance.  Title  by  inherit- 
ance arises  by  operation  of  law,,  as  where  an  heir  takes  an 
estate  upon  the  death  of  an  ancestor.  All  other  forms  are 
classed  as  title  by  purchase. 

86.  Transfer  of  title.  Transfer  of  title  to  real  property 
from  one  Uving  person  to  another  may  be  effected  by  act 
of  the  parties  or  by  operation  of  the  law.  The  most  com- 
mon form  of  transfer  is  by  private  grant,  or  by  a  deed  of 
conveyance.  A  transfer  of  title  to  real  property  must 
always  be  in  writing  and  the  writing  must  be  under  seal 
unless  otherwise  provided  by  statute.  The  person  making 
the  grant,  or  conveyance,  is  the  grantor;  the  one  to  whom 
it  is  made  is  the  grantee. 

A  grant,  or  deed  of  conveyance  takes  effect  only  upon  its 
delivery  by  the  grantor.  It  cannot  be  delivered  to  the  grantee 
upon  condition;  the  moment  it  is  delivered  to  him  it  takes  ef- 
fect, discharged  of  any  condition  on  which  the  deUvery  was 
made.  But  a  grant  may  be  delivered  in  escrow,  that  is,  deposited 
with  a  third  person  to  be  deUvered  on  performance  of  a  condi- 
tion, and  on  delivery  to  the  grantee  it  takes  effect.  A 
delivery  in  escrow  must  place  the  instrument  beyond  the  re- 
call of  the  grantor,  otherwise  it  is  not  a  delivery. 

Re-delivering  a  grant  or  deed  of  title  to  real  property  to  the 
grantor,  or  canceling  it,  does  not  operate  to  re-transfer  the  title. 
This  re-transfer  can  be  made  only  by  a  new  grant  or  deed  of  con- 
veyance from  the  original  grantee  back  to  the  original  grantor. 

A  transfer  vests  in  the  transferee  all  the  actual  title  to  the 
property  which  the  transferor  then  had,  unless  a  different  inten- 
tion is  expressed  or  necessarily  implied.  A  fee  simple  title 
is  presumed  to  be  intended  to  pass  by  a  grant  of  real  prop- 


REAL  PROPERTY  107 

erty,  unless  it  appears  from  the  grant  that  a  lesser  estate  was 
intended. 

87.  Essentials  of  grant.  An  estate  in  real  property, 
other  than  an  estate  at  will  or  for  a  term  not  exceeding 
one  year,  can  be  transferred  only  by  operation  of  law,  or 
by  an  instrument  in  writing,  usually  sealed,  subscribed 
by  the  party  disposing  of  the  estate,  or  by  his  lawfully 
authorized  agent. 

The  word  "grant"  in  any  conveyance  by  which  an  estate  in 
fee  simple  is  to  be  passed,  implies  the  following  covenants,  un- 
less the  contrary  is  expressly  provided  in  the  conveyance: 

(a)  That  previous  to  the  time  of  making  the  conveyance,  the 
grantor  has  not  conveyed  the  same  estate,  or  any  right,  title,  or 
interest  in  it,  to  any  person  other  than  the  grantee. 

(b)  That  such  estate  is  at  the  time  of  the  execution  of  the 
conveyance  free  from  incumbrances  by  the  grantor  or  any  person 
claiming  under  him. 

These  covenants  may  be  sued  upon  in  the  same  manner  as  if 
they  had  been  written  into  the  conveyance. 

Incumbrances  include  taxes,  assessments,  and  all  liens  and 
rights  of  way  on  real  property. 

88.  Recording  transfers.  Any  instrument  or  judg- 
ment affecting  the  title  to  or  possession  of  real  property, 
other  than  a  lease  for  a  term  not  exceeding  one  year,  is 
void  as  against  any  subsequent  purchaser  or  mortgagee 
of  the  same  property,  unless  the  instrument  or  judgment 
first  be  duly  admitted  to  record. 

89.  Mortgages  of  real  property.  Any  interest  in  real 
property  which  is  capable  of  being  transferred  may  be 
mortgaged.  A  mortgage  is  a  contract  by  which  specific 
property  is  pledged  for  the  performance  of  an  obligation, 
but  without  a  transfer  of  possession.   A  mortgage  can  be 


108  APPLIED  BUSINESS  LAW 

created,  renewed,-  or  extended,  only  by  writing,  executed 
with  the  formalities  required  in  the  case  of  a  grant  of  title 
to  real  property. 

A  mortgage  is  against  the  specific  property  pledged  and  not 
a  personal  obligation  unless  made  so  by  express  agreement  to  that 
efifect  in  the  mortgage. 

Example:  O  sells  Whitacre  to  X  and  retains  a  mortgage  on 
the  premises  for  the  purchase  price,  $10,000.  Later,  0  forecloses 
the  mortgage  and  sells  the  premises,  which  has  greatly  deterio- 
rated in  value,  for  $5000.  He  has  no  remedy  against  X  for  the 
balance  unless  he  expressly  preserved  that  right  by  the  terms  of 
the  mortgage  or  by  proper  evidences  of  indebtedness  as  by  a 
note  or  bond  for  the  purchase  price. 

90.  Discharge  of  mortgage.  When  any  mortgage 
has  been  satisfied,  the  mortgagee  or  his  assignee  must  im- 
mediately, on  demand  of  the  mortgagor,  execute,  acknowl- 
edge, and  deliver  to  him  a  certificate  of  the  discharge,  so 
as  to  entitle  it  to  be  recorded,  or  he  must  enter  satisfac- 
tion, or  cause  satisfaction  of  such  mortgage  to  be  entered 
of  record.  The  entry  may  be  in  the  margin  of  the  record, 
properly  signed  and  certified  to  by  the  recorder,  as  a  dis- 
charge of  the  mortgage. 

QUESTIONS  FOR  REVIEW 

8L  Define  property;  real  property;  land;  fixture.    By  what  law 
is  real  property  governed? 

82.  What  are  the  rights  of  an  owner  in  fee?    Of  an  owner  of  a 

Hfe  estate?    Of  a  tenant  for  years? 

83.  What  are  the  estates  that  may  be  held  in  real  property? 

84.  What  are  some  of  the  obligations  of  an  owner  of  an  estate  in 

fee?    Of  a  hfe  tenant?    Of  adjoining  ownens  of  real  prop- 
erty? 

85.  Explain  the  meaning  of  title  to  real  property.    How  is  it 

acquired?    Define  title  by  inheritance;  by  purchase. 


REAL  PROPERTY  lOD 

86.  How  may  title  be  transferred?   What  is  a  grant  or  convey- 

ance of  title  to  real  property? 

87.  What  are  the  essentials  of  a  grant?    What  is  the  effect  of 

the  word  "grant"  in  a  conveyance  of  title?  What  is  a 
covenant? 

88.  Why  should  instruments  affecting  the  title  to  land  be  re- 

corded? 

89.  What  is  a  mortgage?    How  may  it  be  discharged? 

TEST  PROBLEMS  FOR  REVIEW 

1.  X  conveyed  an  estate  to  Y  by  grant.   The  deed  was  executed, 

deUvered,  and  accepted  by  Y,  the  grantee.  Later,  the 
parties  made  an  agreement  that  the  conveyance  should  be 
returned  to  X,  who  was  to  destroy  the  deed,  which  had 
never  been  recorded.  What  was  the  effect  of  the  re- 
delivery to  the  grantor  of  the  deed?  What  effect  had  the 
destruction  of  the  deed?  The  failure  to  record  the  deed? 
.  (see  Dukes  v.  Spangler,  35  Ohio  St.  119). 

2.  X,  the  owner  of  Blackacre,  sold  the  estate  to  Y  on  May  8th. 

On  May  10th  he  sold  the  same  estate  to  Z,  who  had  the 
deed  recorded  at  once.  On  the  following  Monday,  May 
12th,  Y  had  his  deed  recorded.  Question:  Who  is  en- 
titled to  Blackacre? 

3.  0  and  B  signed  a  written  agreement  whereby  0  was  to  sell 

and  B  was  to  buy  and  pay  for  a  house  and  lot,  the  prop- 
^  erty  of  0,  the  sum  of  $10,000;  the  transaction  to  be  com- 
pleted within  ten  days  of  the  date  of  the  agreement.  The 
value  of  the  house  was  estimated  to  be  $5000.  Within 
three  days  the  house  burned  down.  Who  must  sustain 
the  loss? 

4.  0  agreed  to  sell  a  ten-acre  tract  of  land  to  P  for  $10,000,  and 

P  agreed  to  purchase  it.  The  agreement  was  reached  by 
telephone.  Later  on  P  refused  to  take  the  land,  alleging 
that  the  price  was  too  high:    What  can  0  do? 

5.  As  in  number  4,  but  suppose  0  refused  to  carry  out  his  part 

of  the  agreement,  alleging  that  the  land  was  worth  $15,000. 
What  can  P  do? 


CHAPTER  XI 
BUSINESS  CORPORATIONS 

91.  In  general.  A  corporation  is  a  creature  of  the 
law,  having  certain  powers  and  owing  certain  duties  of  a 
natural  person.  Being  created  by  the  law,  it  may  con- 
tinue for  any  length  of  time  which  the  law  prescribes. 

Corporations  are  either  public  or  private.  A  public  corpora- 
tion is  formed  or  organized  for  the  government  of  a  portion  of  the 
state.    All  other  corporations  are  private. 

Private  corporations  may  be  formed  by  the  voluntary  asso- 
ciation of  any  three  or  more  persons  in  the  manner  prescribed 
by  law.  A  majority  of  such  persons  must  be  residents  of  the 
state. 

Private  corporations  may  be  formed  for  any  purpose  for  which 
individuals  may  lawfully  associate  themselves,  whether  for  busi- 
ness, benevolent,  or  social  purposes. 

92.  Articles  of  incorporation.  The  writing  by  which 
a  private  corporation  is  formed  is  known  as  "Articles 
of  liicorporation,"  or  articles  of  association.  These  arti- 
cles must  set  forth:  (1)  The  name  of  the  corporation; 
(2)  the  purpose  for  which  it  is  formed;  (3)  the  place  where 
its  principal  office  is  to  be  located;  (4)  the  term  for  which 
it  is  to  exist;  (5)  the  number  of  its  directors  or  trustees, 
and  the  names  and  residences,  of  those  who  are  appointed 
for  the  first  year;  (6)  the  amount  of  its  capital  stock,  and 
the  number  of  shares  into  which  it  is  divided;  and  (7)  if 

110 


BUSINESS  CORPORATIONS  111 

there  is  a  capital  stock,  the  amount  actually  subscribed, 
and  by  whom. 

The  secretary  of  state,  or  commissionei'  of  corporations,  is  the 
state  official  who  considers  appUcations  for  incorporation.  When 
the  articles  of  incorporation  have  been  properly  made  out  and, 
with  certain  other  required  information,  have  been  filed  in  the 
proper  offices,  the  secretary  of  state  will  issue  to  the  corporation, 
over  the  great  seal  of  the  state,  a  certificate  that  a  copy  of  the 
articles  containing  the  required  statement  of  facts  has  been  filed 
in  his  office,  and  this  certificate  becomes  the  "  charter  "  of  the 
corporation.  This  charter  sets  forth  the  powers  conferred  upon 
the  corporation,  and  thereby  becomes  a  contract  between  the 
corporation  and  the  state.  Hence,  the  corporation,  through  its 
directors,  must  comply  strictly  with  the  law  governing  it,  other- 
wise it  will  forfeit  its  charter. 

93.  By-laws.  Within  a  reasonable  time  after  receiv- 
ing its  charter,  a  corporation  must  adopt  a  code  of  by- 
laws for  its  government.  The  assent  of  shareholders  rep- 
presenting  a  majority  of  all  the  subscribed  capital  stock 
is  necessary  to  adopt  by-laws. 

A  corporation  may  by  its  by-laws,  where  no  other  provision 
is  specially  made,  provide  for: 

(a)  The  time,  place  and  manner  of  calling  and  conducting 
meetings,  and  may  dispense  with  notice  of  all  regular  meetings 
of  stockholders  or  directors; 

(b)  The  number  of  stockholders  or  members  constituting  a 
quorum; 

(c)  The  mode  of  voting  by  proxy; 

(d)  The  qualifications  and  duties  of  directors,  and  also  the 
time  of  their  annual  election,  and  the  mode  and  manner  of  giving 
notice  thereof; 

(e)  The  compensation  and  duties  of  officers; 

(f)  The  manner  of  electing  and  tenure  of  office  of  all  officers 
other  than  the  directors;  and 


112  APPLIED  BUSINESS  LAW 

(g)  Suitable  penalties  for  violations  of  the  provisions  of  the 
by-laws. 

When  adopted,  the  by-laws  must  be  certified  by  a  majority 
of  the  directors,  and  a  copy  of  the  same  must  be  open  for  pub- 
lic inspection. 

94.  Powers  of  corporation.  Every  corporation  has 
power:  (1)  Of  succession  by  its  corporate  name,  for  the 
period  limited;  and  when  no  period  is  limited,  then  per- 
petually. 

(2)  To  sue  and  to  be  sued  in  any  court. 

(3)  To  make  and  use  a  common  seal,  and  alter  the  same 
at  pleasure. 

(4)  To  purchase,  hold  and  convey  such  real  and  per- 
sonal property  as  the  purposes  of  the  corporation  may 
require,  not  exceeding  the  amount  limited  by  the  laws  of 
the  state. 

(5)  To  appoint  such  subordinate  oflEicers  or  agents  as 
the  business  of  the  corporation  may  require,  and  to  allow 
them  suitable  compensation. 

(6)  To  make  by-laws,  not  inconsistent  with  any  exist- 
ing law,  for  the  management  of  the  property,  the  regula- 
tion of  its  affairs,  and  for  the  transfer  of  its  stock. 

(7)  To  admit  stockholders  or  members,  and  to  sell 
their  stock  or  shares  for  the  payment  of  assessments  or  in- 
stalments. 

(8)  To  enter  into  any  obligation  or  contract  essential 
to  the  transaction  of  its  ordinary  affairs,  or  for  the  pur- 
poses of  the  corporation. 

A  corporation  may  not  possess  or  exercise  any  powers  in  ad- 
dition to  the  above  enumerated  powers,  except  such  as  are  nec- 
essary to  the  exercise  and  carrying  out  of  the  powers  just  enu- 
juers^ted, 


BUSINESS  CORPORATIONS  113 

95.  Stockholders.  All  corporations  for  profit  must 
issue  certificates  of  stock  when  fully  paid.  The  shares  of 
stock  for  which  such  certificates  are  issued  are  personal 
property,  and  may  be  transferred  by  indorsement  and 
delivery  of  the  certificate.  The  holder  of  such  a  certifi- 
cate is  known  as  a  stockholder  of  the  corporation.  As  a 
rule,  stockholders  are  liable  for  the  debts  of  the  corpora- 
tion only  to  the  extent  of  their  unpaid  subscription  for 
stock  in  the  corporation. 

In  some  cases,  as  under  the  national  banking  law,  a  double 
liability  is  imposed  upon  the  stockholder.  That  is,  he  becomes 
liable  to  the  extent  of  his  initial  investment,  up  to  the  par  value 
of  the  stock  he  holds,  plus  an  additional  liability  for  such  pro- 
portion of  all  the  debts  of  the  corporation  contracted  while  he 
was  a  stockholder  as  the  amount  of  his  stock  bears  to  the  sub- 
scribed capital  stock,  provided  this  additional  liabiUty  does  not 
exceed  the  par  value  of  his  stock. 

In  extreme  cases  the  stockholders  become  liable  for  the  entire 
indebtedness  of  a  corporation,  being  governed  by  the  rule  of  un- 
limited liability  as  in  the  case  of  ordinary  partnership  liability. 

96.  Directors.  The  business  and  property  of  a  corpo- 
ration must  be  conducted  and  controlled  by  a  board  of 
directors  to  be  elected  from  among  the  holders  of  stock. 
All  elections  must  be  by  ballot,  and  every  stockholder  has 
the  right  to  vote  in  person  or  by  proxy  the  number  of 
shares  of  stock  standing  in  his  name,  for  as  many  persons 
as  there  are  directors  to  be  elected.  Or,  in  most  states, 
he  may  "cumulate"  his  votes  and  give  one  candidate  as 
many  votes  as  the  number  of  directors  multiplied  by  the 
number  of  his  shares  of  stock  shall  equal;  or,  he  may  dis- 
tribute his  votes  on  the  same  principle  among  as  many  can- 
didates a9  be  may  see  fit. 


114  APPLIED  BUSINESS  LAW 

Immediately  upon  their  election,  the  directors  must  organ- 
ize by  electing  a  president,  who  must  be  one  of  their  number,  a 
secretary,  and  a  treasurer.  They  must  perform  the  duties  as- 
signed to  them  by  law  and  by  the  by-laws  of  the  corporation. 
A  majority  of  the  directors  is  sufficient  to  form  a  board  for  the 
transaction  of  business,  and  every  decision  of  a  majority  of  the 
directors  forming  such  board,  made  when  duly  assembled,  is 
vaUd  as  a  corporate  act. 

97.  Dissolution  of  corporation.  Since  a  corporation 
is  a  contract  between  the  state  and  the  organizers,  and 
their  successors,  of  a  corporation,  its  dissolution  can  take 
place  only  in  certain  lawful  ways.  As  a  rule,  it  may  be 
dissolved  by:  (1)  A  forfeiture  of  the  charter  upon  a  de- 
cree of  a  proper  court  for  misuse  or  nonuse  of  its  powers; 
or  (2)  where  the  state  has  reserved  the  right,  the  char- 
ter may  be  repealed;  or  (3)  the  charter  usually  provides 
for  a  voluntary  dissolution  where  all  the  creditors  have 
been  provided  for  and  a  decree  of  dissolution  is  obtained 
from  a  court  of  proper  jurisdiction;  or  (4)  the  method  of 
dissolution  contemplated  in  the  charter  is  that  by  limita- 
tion or  the  expiration  of  the  time  stated  in  the  charter. 

QUESTIONS  FOR  REVIEW 

91.  Explain  the  nature  and  purpose  of  corporations.     Define 

public  corporation;  private  corporation. 

92.  What  do  the  articles  of  incorporation  show?    Explain  what 

is  meant  by  the  "charter"  of  a  corporation. 

93.  What  are  the  purposes  of  by-laws?    How  made?  Explain 

"voting  by  proxy." 

94.  Give  the  general  powers  of  a  corporation. 

95.  Explain  certificates  of  stock;  stockholders;  liability  of  stock- 

holders for  the  indebtedness  of  the  corporation. 


BUSINESS  CORPORATIONS  115 

96.  Who  may  become  directors  of  a  corporation?    What  are 

the  duties  of  the  directors? 

97.  Give  the  ways  in  which  corporations  may  be  dissolved. 

TEST  PROBLEMS 

A,  B,  and  C  own  the  entire  stock  of  the  X  corporation.  They 
mutually  agree  to  shut  up  shop  and  give  up  the  business.  May 
they  do  this?  Why?  It  is  a  private  corporation,  owned  by  pri- 
vate citizens.  May  they  not  do  as  they  like  with  their  own  pri- 
vate property,  so  long  as  they  do  not  wrong  or  injure  others? 

A,  B,  and  C  are  partners  owning  a  private  business.  They 
mutually  agree  to  pay  their  debts  and  shut  up  shop,  discontinu- 
ing the  business.  Do  they  have  to  ask  permission  of  the  state  in 
order  to  do  this?    Why  not? 


INTEREST  RATES  AND  PENALTY  FOR  USURY 


Name  of  State 

Legal  Rate 

Highest  Rate 

Penalty  for  Usury 

Ala. 

8 

8 

Loss  of  all  interest 

Alaska 

8 

12 

Loss  of  interest 

Arizona 

6 

10 

No  penalty 

Ark. 

6 

10 

Loss  of  prin.  and  int. 

Cal. 

7 

,  No  limit 

No  penalty 

Colorado 

8 

No  limit 

No  penalty 

Conn. 

6 

12 

Loss  of  excess 

Del. 

6 

6 

Loss  of  principal 

D.  C. 

6 

10 

Loss  of  interest 

Fla. 

8 

10 

Loss  of  interest 

Ga. 

7 

8 

Loss  of  excess 

Idaho 

7 

12 

Loss  of  intrest 

lU. 

6 

7 

Loss  of  interest 

Ind. 

6 

8 

Loss  of  excess 

Iowa 

6 

8 

Loss  of  interest 

Kan. 

6 

10 

Loss  of  excess 

Ky. 

6 

6 

Loss  of  excess 

La. 

5 

8 

Loss  of  interest 

Maine 

6 

No  limit 

No  penalty 

Md. 

6 

6 

Loss  of  excess 

Mass. 

6 

No  limit 

No  penalty 

Mich. 

5 

7 

Loss  of  interest 

Minn. 

6 

10 

Loss  of  interest 

Miss. 

6 

8 

Loss  of  interest 

Mo 

6 

8 

Loss  of  excess 

Mont. 

8 

12 

Loss  of  interest 

Neb. 

7 

10 

Loss  of  interest 

Nev. 

7 

10 

Loss  of  interest 

N.  H. 

6 

6 

Loss,  treble  excess 

N.J. 

6 

6 

Loss  of  interest 

N.  Mex. 

6 

12 

Loss  of  excess 

N.  Y. 

6 

6 

Loss  of  int.  and  prin. 

N.  C. 

6 

6 

Loss  of  interest 

N.  Dak. 

6 

10 

Loss,  double  interest 

Ohio 

6 

8 

Loss  of  excess 

Okla. 

6 

10 

Loss  of  interest 

Oregon 

6 

10 

Loss  of  principal 

Pa. 

6 

6 

Loss  of  excess 

R.  L 

6 

No  limit 

Loss  of  debt;  fine 

S.  C. 

7 

8 

Loss  of  interest 

S.  D. 

7 

12 

Loss  of  excess 

Tenn. 

6 

6 

Loss  of  excess 

Tex. 

6 

10 

Loss  of  interest 

Utah 

8 

12 

Loss  of  excess 

Vt. 

6 

6 

Loss  of  excess 

Va. 

6 

6 

Loss  of  interest 

Wn. 

6 

12 

Loss,  double  interest 

W.  Va. 

6 

6 

Loss  of  excess 

Wis. 

6 

10 

Loss  of  interest 

Wyoming 

8 

12 

Loss  of  interest 

116 


PART  II 
HOW  TO  WRITE  BUSINESS  PAPERS 


GROUP  I 

SIMPLE  CONTRACTS 

201.  In  general.  With  reference  to  their  written 
forms,  contracts  are  classified  as  (1)  simple  and  (2) 
formal.  Simple  contracts  are  those  that  are  in  ordinary- 
written  form,  while  formal  contracts  are  writings  under 
seal.  The  former  are  often  referred  to  as  parol  agreements, 
this  designation  including  both  oral  and  written  forms  of 
the  simple  contract,  while  the  latter  are  known  as  special- 
ties or  sealed  instruments. 

'  In  a  number  of  states  all  distinction  between  sealed  and  un- 
sealed instruments  has  been  abolished.  In  these  states,  the  mere 
fact  that  a  contract  or  promise  is  in  writing  implies  the  presence 
of  a  consideration,  but  in  the  states  that  still  retain  the  common- 
law  rule  a  simple  contract  must  recite  the  presence  of  a  con- 
sideration, otherwise  the  obligation  will  be  in  the  nature  of  a  gift 
and  unenforceable. 
Examples:  1.  Simple  contract  to  pay  money: 

"Mobile,  Alabama,  December  28,  1918.  One  year  after  date 
I  promise  to  pay . . .  John  Doe . . .  the  sum  of  one  hundred  dollars, 

for  ten  thousand  feet  of  pine  boards  delivered  to  me  this  day 

"  (Signed)  Richard  Roe." 

2.  Bond,  or  promise  under  seal  to  pay  money: 
"$100.00  Mobile,  Alabama,  December  3, 1918. 

"  Know  All  Men  By  These  Presents:  That  I, John 

Doe,...  am  held  and  firmly  bound  unto ...  Richard  Roe... 
in  the  sum  of  One  Hundred  Dollars,  to  be  paid  in  lawful  money 
of  the  United  States  to  the  said. .  .Richard  Roe. .  .his  executors, 

119 


1^  APPLIED  BUSINESS  LAW 

administrators,  or  assigns,  on  the. .  .third  day  of  December,  one 
thousand  nine  hundred  nineteen;  to  which  pajrment  I  bind  my- 
self, my  executors  and  administrators  by  these  presents. 

"  Witness  my  hand  and  seal  this  third  day  of  December,  one 
thousand  nine  hundred  eighteen. 

"  (Signed)  John  Doe  (Seal).". 

3.  Directions:  On  separate  pieces  of  paper  make  a  copy  of 
each  of  the  above  forms.  The  first,  if  weU  arranged  in  short 
lines  and  with  proper  margins,  will  occupy  about  six  lines  on  the 
page. 

The  second,  when  written  in  an  ordinary  hand  and  well  ar- 
ranged on  the  page,  will  occupy  more  than  a  dozen  lines.  Write 
the  word  "Specimen"  across  the  face  of  each  in  red  ink. 

Do  all  work  in  ink,  or  on  the  typewriter,  and  with  the  greatest 
possible  care  and  neatness. 

Place  your  name  on  each  page  and  submit  for  approval. 

Test:  "Is  this  the  best  you  can  do?  If  not,  write  it  over 
again  " 

Remember,  careless  or  slovenly  work  wiU  not  be  tolerated  in 
an  up-to-date  business  office. 

202.  Oral  and  written  contracts.  In  ordinary  busi- 
ness, most  contracts  may  be  oral  in  form,  that  is,  by  word 
of  mouth.  Such  contracts  are  just  as  binding  in  law  as  if 
written  in  full.  But  with  oral  contracts  mistakes  are  com- 
mon and  misunderstandings  are  numerous.  They  are 
always  more  or  less  difficult  to  prove  in  court.  Therefore, 
to  avoid  misunderstandings  and  to  make  proof  certain, 
all  important  contracts  should,  whether  required  by  law 
or  not,  be  in  writing. 

After  an  oral  agreement  has  been  reached,  great  care  must  be 
used  when  it  is  put  into  writing  in  order  that  it  shall  express  the 
exact  intention  of  the  parties.  This  is  absolutely  essential,  since 
the  written  form  is  the  only  part  admissible  as  evidence  to  prove 


SIMPLE  CONTRACTS  121 

the  existence  of  the  agreement.  In  other  words,  oral  testimony  is 
not,  as  a  rule,  admissible  to  vary  or  contradict  the  terms  of  a 
written  contract. 

Statute  of  Frauds.  In  most  states  there  are  only  about 
a  half-dozen  forms  of  contracts  that  are  expressly  required  by 
law  to  be  in  writing  in  order  to  render  them  valid.  These  sev- 
eral forms  should  be  so  carefully  learned  that  they  will  be  in- 
stantly recognized  (see  p.  12,  Book  I). 

203.  Offer  and  acceptance.  Contracts  arise  from 
agreement,  and  agreements  originate  in  some  form  of  offer 
and  acceptance.  In  oral  contracts  the  offer  and  accept- 
ance are  by  word  of  mouth;  after  the  agreement  is  reached 
it  may  be  reduced  to  writing,  thus  forming  a  written  con- 
tract. 

Agreement's  may  also  be  reached  by  correspondence. 
Where  the  negotiations  are  in  this  form,  the  agreement  of 
the  parties  and  the  written  form  of  the  contract  originate 
at  the  same  time.  A  written  offer  followed  by  an  accept- 
ance in  writing,  whether  by  letters  or  by  telegrams,  re- 
sults in  a  contract;  these  writings  constitute  the  evidence 
of  the  agreement,  and  are,  in  fact,  the  written  contract. 

Examples:  1.  Oral  offer  and  oral  acceptance: 

"I  will  sell  you  that  cow  for  $500,  and  deliver  her  at  your 
place  not  later  than  May  3d,"  said  0  to  B,  as  he  pointed  out  a 
cow  in  his  dairy  herd. 

"Agreed,"  replied  B,  "I  will  take  her  at  that  price,  and  make 
payment  on  delivery." 

This  oral  agreement  may  be  reduced  to  writing;  if  so,  it  will 
be  somewhat  as  follows: 

"This  Agreement  between  0  and  B,  both  of  Cowlitz,  Oregon, 
witnesseth: 

"That  0,  in  consideration  of  the  agreement  of  B,  contracta 


in  APPLIED  BUSINESS  LAW 

to  sell  and  deliver  to  B  one  full-bred  Jersey  dairy  cow,  roistered 
and  known  as  'Jersey  Lil,'  the  delivery  to  be  made  on  or  before 
May  3d,  1919,  at  the  dairy  farm  of  B. 

"That  in  consideration  of  the  agreement  of  0,  B  agrees  to  pay 
to  0  the  sum  of  Five  Hundred  Dollars,  at  the  time  of  the  delivery 
of  the  above  described  cow,  this  sum  being  in  full  payment  of  the 
purchase  price. 

"In  WiTNEsa  Whereof,  we  have  hereunto  subscribed  our 
names,  this  the  4th  day  of  February,  1919." 

"(Signed) O " 

"(Signed) B " 

2.  Agreement  reached  by  means  of  letters: 

Offer 

Troy,  Minnesota,  February  3,  1919. 
John  Doe, 

Home  Place. 
Dear  Sir: 

I  will  sell  you  one  hundred  bushels  of  select  seed  wheat.  No. 
1  Dura,  delivered  at  your  farm  for  four  dollars  a  bushel. 

Upon  receipt  of  your  letter  of  acceptance,  I  will  consider  the 
contract  closed,  and  deliver  as  you  may  direct. 

Yours    truly, 
Richard   Roe 

Acceptance 

Home  Place,  Feb.  4,  1919. 
Richard  Roe, 

Troy,  Minn. 
Dear  Sir: 

I  accept  your  offer  of  one  hundred  bushels  of  select  seed  wheat, 
No.  1  Dura,  at  four  dollars  a  bushel,  to  be  deUvered  at  my  place 
March  4,  1919. 

Yours  very  truly, 
John  Doe 


SIMPLE  CONTRA.CTS  123 

The  foregoing  letters  constitute  a  valid  written  contract,  and 
taken  together,  contain  all  the  essential  elements  of  a  vaUd 
contract.  Point  out  five  essentials  of  a  vaUd  contract  found  in 
these  letters. 

3.  Agreement  reached  by  telegrams: 

Offer 

Salem,  Oregon,  Feb.  5,  1919. 
Isaac  Stein,  Milwaukee,  Wis. 

Can  supply  five  ton  hops,  ten  cents  spot;  f.  o.  b.  cars,  Salem; 
immediate  delivery. 

Kreps  Hop  Co 

Acceptance 

Milwaukee,  February  5, 1919. 
Kreps  Hop  Co.,  Salem,  Ore. 

Accept  your  ofifer  five  ton  hops,  ten  cents  spot;  immediate 
delivery,  f.  o.  b.  cars  Salem. 

Isaac  Stein 

These  telegrams  constitute  a  written  contract.  The  language 
used  is  such  as  can  be  understood  readily  by  dealers  in  hops,  and 
which  may  be  explained  and  established  by  parol  evidence  to 
show,  from  the  customs  and  usages  of  the  business,  the  peculiar 
meaning  and  intention  of  the  parties. 

4.  Negotiation  by  letter.   Is  there  a  contract? 

."Invitation  to  Bid " 

Fresno,  Dec.  27, 1915. 
To  the  Trade: 

We  quote  prime  seedless  raisins  at  7c,  in  lots  of  10,000  lbs.  or 
more.  The  stock  is  this  season's  pack  and  put  up  in  fancy  car- 
tons,  printed  tg  guit  the  purchaser. 


124  APPLIED  BUSINESS  LAW 

Order 

Denver,  Dec.  30,  1915. 
Fresno  Raisin  Co., 
Fresno,  California. 
Gentlemen : 

Please  book  us  for  100,000  lbs.  your  prime  seedless  raisins  at 
7c,  the  cartons  to  be  printed  for  our  trade  as  indicated  by  the 
inclosed  form. 

Yours  truly, 
Colorado  Supply  Company 

Reply 

Fresno,  Jan.  3,  1916. 
Colorado  Supply  Co., 
Denver,  Colorado. 
Gentlemen: 

In  reply  to  your  letter  of  December  30th,  we  regret  that  we 
can  not  book  your  order  for  100,000  lbs.  seedless  raisins  as  our 
supply  has  been  exhausted  by  heavy  foreign  orders. 
Regretting  our  inability  to  supply  you,  we  are 

Very  truly  yours, 
Fresno  Raisin  Company, 
By  A.  R.  Mann 

Analysis:  Was  the  circular  letter  an  offer  to  sell  raisins  to  any 
particular  buyer,  or  was  it  an  invitation  to  the  trade  generally 
to  order  goods  at  the  price  quoted?  Was  the  price  quoted  in- 
tended as  a  fixed  offer,  or  was  it  to  be  subject  to  market  varia- 
tions? 

If  the  circular  letter  was  an  invitation  to  order,  was  the  letter 
from  the  Colorado  Supply  Co.  an  order  or  an  offer  to  buy  the 
amount  specified?  If  the  order  was  an  offer  to  buy,  was  the  re- 
ply an  acceptance  of  the  offer?  Did  the  parties  reach  an  agree- 
ment through  an  offer  and  an  acceptance? 

Do  these  letters  show  the  existence  of  a  complete  contract 
between  the  parties? 


SIMPLE  CONTRACTS  125 

5.  Directions:  Make  a  copy  of  the  form  of  contract  given 
under  the  first  example  above.  Use  a  proper  heading  and  see 
that  you  make  an  exact  copy.  Mark  it  "Copy,"  place  your 
name  on  it  and  submit  it  for  approval. 

Write  two  letters  which  indicate  a  contract  has  been  made  by 
correspondence,  as  under  the  second  example.  Remember  the 
caution  as  to  neatness. 

Write  two  telegrams  which  indicate  a  complete  contract,  as 
under  the  third  example.  Try  to  keep  near  or  within  the  ten- 
word  limit. 

Write  a  form  of  circular  letter  inviting  orders  from  the  trade. 
Based  on  this  invitation,  write  two  other  letters  which  give  rise 
to  a  valid  contract. 

204.  Essentials  of  contract.  The  first  essential  of 
any  contract  is  the  presence  of  competent  parties,  and  the 
second  is  the  mutual  agreement  of  these  parties.  Agree- 
ment arises  from  a  meeting  of  the  minds,  or  an  assent  to 
the  same  thing  and  in  the  same  sense,  and  it  must  be  with 
an  intention  of  being  bound  by  the  obligations  of  the  con- 
tract. The  third  essential  is  that  the  agreement  must  be 
free  from  fraud,  mistake,  or  duress.  Fourth,  it  must  be 
based  upon  sufficient  cause,  price,  or  consideration,  (fifth) 
to  accomplish  a  lawful  purpose.  The  sixth  and  last  essen- 
tial of  a  written  contract  is  that  it  must  be  clearly  stated. 

Therefore,  however  simple  the  contract,  great  care  must  be 
used  to  express  the  agreement  in  clear,  exact  language.  Every 
essential  must  be  set  down  with  precision;  the  parties,  the  agree- 
ment, the  consideration,  a  lawful  object  or  purpose,  and  all  the 
terms  set  out  with  clearness. 

The  omission  of  any  essential  or  a  want  of  clearness  will  be 
fatal  to  the  validity  of  the  contract.  In  every  case,  the  person 
writing  out  a  contract  should  note  carefully  that  it  expresses 
all  the  essentials  just  named,  though  the  order  in  which  they 
are  given  is  immaterial. 


126  APPLIED  BUSINESS  LAW 

Directions:  Read,  the  form  of  contract  given  in  example  1, 
in  the  preceding  section,  and  point  out  each  of  the  above  named 
essentials.  Does  the  language  clearly  express  an  agreement  be- 
tween the  parties?  Indicate  one  or  two  changes  which  would 
make  the  form  more  concise  and  yet  leave  it  clear. 

Point  out  the  essentials  in  example  3.  Is  the  language  intel- 
ligible? How  may  it  be  made  so?  Is  oral  testimony  admissible 
to  show  the  meaning  of  a  written  instrument?  Is  it  admissible 
to  change  the  meaning?  (see  sec.  202,  ante). 

What  essentials  are  missing  in  example  4? 

205.  Parts  of  written  contract.  In  every  well  written 
contract  there  are  five  parts,  at  least,  and  where  necessary 
there  may  be  more.  These  five  parts  are:  (1)  Heading, 
(2)  initial  agreement,  (3)  counter  agreement,  or  consid- 
eration, (4)  conclusion,  and  (5)  subscription. 

(1)  Heading.  The  heading  or  opening  paragraph 
names  the  parties  to  the  contract,  and  gives  their  addresses. 
It  may  state  that  the  contract  is  in  duplicate,  triplicate, 
or  other  fold,  or  is  to  be  held  in  escrow  by  a  third  party, 
and  it  may  also  give  the  date. 

(2)  Initial  agreement.  The  second  part  contains  a 
clear  statement  of  the  exact  thing  that  the  first  party  to 
the  contract  agrees  to  do  or  refrain  from  doing.  All  the 
stipulations  and  specifications  are  set  forth  in  detail  and 
in  logical  order.  This  part  of  the  contract  may  be  put  into 
a  single  paragraph,  or  as  many  paragraphs  may  be  used 
as  are  required  for  its  clear  statement.  Paragraphs  after 
the  first  are  grouped  as  further  agreements. 

(3)  Counter  agreement,  or  consideration.  This  part 
of  the  contract  contains  a  statement  of  the  consideration, 
or  the  exact  inducement  and  undertaking  of  the  second 
party  to  the  agreement.    If  it  is  for  the  payment  of  money, 


SIMPLE  CONTRACTS  127 

it  should  state  when,  where,  and  how  payment  is  to  be 
made  and  to  whom,  and  it  may  state  for  what  the  pay- 
ment is  given,  and  it  must  state  the  exact  amount. 

(4)  Conclusion.  The  conclusion  is  merely  a  witness- 
ing clause  and  not  absolutely  essential  to  the  validity  of 
the  contract,  though  in  well  written  contracts  it  is  custom- 
ary to  include  it. 

(5)  Subscription.  The  last  part  of  a  well  arranged 
written  contract  contains  the  signature  of  each  party  to 
the  agreement  properly  written  at  the  end.  The  word  sub- 
scription is  from  the  Latin,  "sub,"  meaning  under,  and 
"scriptio,"  to  write,  and  literally  means  to  underwrite. 
To  subscribe  is  to  "underwrite"  a  contract,  or  to  sign  at 
the  end  of  the  writing. 

In  some  states  the  statutes  require  certain  contracts  to  be  in 
writing  and  "signed"  by  the  parties,  while  in  others  the  require- 
ment is  that  the  writing  be  "subscribed."  The  point  is,  a  sig- 
nature may  appear  in  any  part  of  a  writing,  but  a  subscription 
can  be  only  at  the  end. 

The  subscription  in  a  contract  may  be  by  the  parties  themselves 
or  by  their  lawful  agents  acting  for  them,  and  it  may  contain 
the  signature  of  one  or  more  witnesses  to  the  genuineness  of  the 
written  agreement  and  the  signatures  of  the  contracting  parties 
or  their  agents. 

206.  Form  of  agreement.  The  following  form  illus- 
trates the  usual  arrangement  in  writing  out  contracts: 

FORM  OF  CONTRACT 

Heading. . .  .This  Agreement,  Made  in  dupUcate,  this  the  sixth 
day  of  May,  one  thousand  nine  hundred  and  nineteen, 

entered  into  by  and  between 

Aaron  Baal of  Boise,  Idaho,  and 

Cabez  Dann of  Provo,  Utah, 


128  APPLIED  BUSINESS  LAW 

Initial Witnesseth,  that  the  said  Aaron  Baal,  in  consider- 

agree-  ation  of  the  agreement  of  the  said  Cabez  Dann,  as  here- 
ment  inafter  set  forth,  agrees  to  sell  to  the  said  Cabez  Dann 
one  full-bred  short-horn  Durham  bull,  known  as  "El 
Toro  Primero,"  the  same  to  be  of  registered  stock,  and 
the  delivery  of  which  is  to  be  accompanied  by  a  certifi- 
cate of  registry  to  be  delivered  to  the  said  Cabez  Dann 
within  ten  days  from  this  date. 

Further And  the  said  Aaron  Baal  further  agrees  to  deliver 

agree-  to  the  said  Cabez  Dann  at  his  stock  farm  one  mile  east 
ment  of  the  City  of  Provo,  Utah,  the  above  described  bull, 
"El  Toro  Primero,"  or  at  his  election  to  deliver  the  same 
at  the  Inter-state  Live  Stock  Exhibit,  Union  Stock 
Yards,  Denver,  Colorado,  not  later  than  the  tenth  day 
of  May,  nineteen  hundred  nineteen. 

Consid- In  consideration  of  the  agreements  just  stated,  the 

eration  said  Cabez  Dann  agrees  to  pay  to  the  said  Aaron  Baal  the 
sum  of  One  Thousand  Dollars  ($1000.00),  lawful  money 
of  the  United  States,  at  the  time  the  said  bull,  "El  Toro 
Primero,"  is  safely  delivered  as  directed  by  the  said 
Cabez  Dann,  this  sum  being  in  full  payment  therefor. 

Conclvr- In  Witness  Whereof,  the  parties  to  this  agree- 

simi       ment  have  hereunto  set  their  hands  the  day  and  year 

first  above  written. 
Sub-      . . .  .Witnessed by  Aaron  Baal 

scrip-    Ezra  Fat  Cabez  Dann 

EXERCISE  I 

207.  Analysis.  Read  the  above  form  carefully. 
Point  out  all  the  essentials  of  a  written  contract.  Point 
out  one  or  more  non-essentials.  Name  the  parties  to  the 
contract.  State  the  initial  agreement.  Which  party  makes 
the  initial  agreement?  State  the  counter-agreement,  or 
consideration.    Which  party  furnishes  the  consideration 


SIMPLE  CONTRACTS  129 

for  the  initial  agreement?    Give  the  conclusion.    What 
does  the  subscription  include?  " 

Does  the  writing  sufficiently  identify  the  parties  to  the  con- 
tract? Does  it  sufficiently  describe  and  identify  the  subject- 
matter  of  the  agreement?  Does  it  clearly  state  the  undertaking 
of  the  first  party  to  the  contract?  Does  it  indicate  with  sufficient 
exactness  the  place  and  manner  of  performance  of  the  initial 
agreement?  Does  it  indicate  the  time  of  performance?  Is  there 
any  uncertainty  as  to  who  has  the  right  to  elect  where  the  bull 
is  to  be  deUvered? 

Is  the  consideration  clearly  stated?  Is  the  amount  certain? 
Is  the  time  of  payment  given?  Is  the  payment  to  be  in  full  of 
the  purchase  price?    How  may  payment  be  made? 

Would  the  omission  of  the  conclusion  render  the  contract  in- 
valid? Would  the  omission  of  the  date  affect  the  validity  of  the 
agreement?  Is  it  necessary  that  the  contract  be  witnessed? 
What  effect  has  the  witnessing? 

Directions:  Make  an  exact  copy  of  the  contract  either  in 
longhand  or  on  the  typewriter.  Remember  the  caution:  "Care- 
less or  slovenly  work  will  not  be  tolerated  in  a  good  business 
office."  Do  your  best.  Mark  the  copy  "Exercise  I,"  write  your 
name  on  it,  and  submit  it  for  ajjproval.  After  it  has  been  ap- 
proved, file  it  away  until  you  are  directed  to  use  it  again. 

208.  Briefing.  A  brief  title  or  identification  mark 
or  number  is  usually  written  on  the  back  of  folded  docu- 
ments before  they  are  filed  away.  This  is  called  "  briefing  " 
and  its  purpose  is  to  enable  one  readily  to  identify  the 
document  without  opening  and  reading  it.  The  briefing 
title  should  be  centered  properly  upon  the  left  end  of  the 
outside  fold  nearest  the  middle  of  the  document.  It 
should  be  arranged  in  a  neat  and  orderly  manner.  The 
following  is  a  suitable  form  of  briefing  for  th^  cpntract 
ifl  sectioa  2Q0; 


130 


APPLIED  BUSINESS  LAW 
FORM  OF  BRIEFING 


Contract 

Between 

Aaron  Baal 

and 
Cabez  Dann 

For  the  Sale  of  Bull 
May  6,  1919 


Directions  for  Briefing.  After  your  copy  of  the  contract  in 
section  206  has  been  approved,  fold  it  carefully  and  brief  it  by 
writing  the  above  form  on  the  left  end  of  the  fold  nearest  the 
middle  of  the  document. 

If  the  contract  is  written  on  commercial  size  paper,  8}^  x  11 
inches,  fold  as  follows: 

Grasp  the  lower  left  corner  of  the  sheet  and  turn  it  upward 
until  the  bottom  is  about  three  and  one-half  or  four  inches  from 
the  top,  then  press  the  fold  until  flat;  next  grasp  the  upper  left 
comer  of  the  sheet  and  bring  it  down  to  within  a  quarter  of  an 
inch  of  the  left  corner  of  the  first  fold  and  press  the  fold  until 
fiat.  Thus,  the  document  when  folded  is  a  little  less  than  four 
inches  wide.  The  briefing  or  "indorsement"  is  placed  upon  the 
left  end  of  the  middle  fold. 

If  legal-cap  paper  is  used,  size  83^  x  13  inches,  it  may  be  folded 
in  the  following  manner:  Grasp  the  lower  left  corner  of  the  sheet 
and  turn  it  upward  until  the  bottom  and  top  edges  are  even,  then 
press  the  fold  out  flat.  Next,  fold  from  the  bottom  upward  as 
before,  thus  making  four  folds.  The  briefing  or  "indorsement" 
should  be  placed  on  the  left  end  of  the  outside  fold  nearest  the 
middle  of  the  document. 

Where  it  desirable  to  put  business  papers  and  legal  documents 
in  covers^  the  folding  may  be  made  as  indicated  above  and  the 


SIMPLE  CONTRACTS  ISl 

briefing  or  indorsing  is  written  on  the  cover,  in  the  same  relative 
position. 

After  the  briefing  of  this  document  has  been  approved,  file  it 
for  future  reference. 

EXERCISE  II 

209.  Material  facts.  Gus  Hall  of  Yolo,  California, 
operates  a  fruit  packing  business.  Eli  Fox  of  Afton,  Cali- 
fornia, is  a  fruit  and  olive  grower  and  has  offered  to  sup- 
ply Hall  with  50,000  pounds  of  ripe  and  marketable  cher- 
ries of  the  Melifera  variety,  to  be  delivered  at  the  pack- 
ing house  at  the  rate  of  10,000  pounds  a  day  from  the 
sixth  to  the  tenth  day  of  June,  1919;  and  he  has  offered 
twenty  thousand  pounds  of  ripe  and  marketable  figs  of 
the  Calmyma  variety  to  be  delivered  at  the  packing  house 
at  the  rate  of  two  thousand  pounds  a  day  from  the  first 
to  the  tenth  day  of  July,  1919;  and  he  has  also  offered 
60,000  pounds  of  ripe  olives  of  the  Primero  variety,  to  be 
delivered  at  the  packing  house  at  the  rate  of  two  thousand 
pounds  a  day  during  the  month  of  September,  1919. 

Hall  agrees  to  take  the  cherries  at  three  cents  a  pound, 
the  figs  at  ten  cents  a  pound,  and  the  olives  at  five  cents 
a  pound,  the  purchase  price  to  be  paid  immediately  upon 
delivery  of  the  various  allotments.  The  contract  is  dated 
June  third,  1919. 

1.  Analysis  of  Facts. 

As  TO  Substance:  (1)  Name  the  parties  to  the  negotiation. 
Their  residence.  (2)  Is  there  an  offer?  By  whom  made?  What 
is  the  offer,  or  is  there  a  series  of  offers?  State  each.  (3)  To 
whom  is  the  offer  made?  Has  it  been  accepted?  Or  is 
there  a  series  of  acceptances?     State  each  part.     (4)  Is  there 


132  APPLIED  BUSINESS  LAW 

mutual  agreement?  Is  there  a  contract?  (5)  Is  the  object  or 
purpose  of  the  agreement  a  legal  one?  (6)  What  is  the  consider- 
ation for  the  undertaking  of  Fox?  (7)  Is  the  contract  re- 
quired, by  the  Statute  of  Frauds,  to  be  in  writing?  Does  the 
value  amount  to  more  than  $200? 

As  TO  Form  :  How  many  parts  will  there  be  in  the  written  form 
of  this  contract?  What  will  the  heading  contain?  (Make  an 
oral  statement  of  the  heading.)  What  will  be  the  substance  of  the 
initial  agreement?  (Make  an  oral  statement  of  the  initial  agree- 
ment.) Who  makes  this  agreement?  Does  he  make  any  "fur- 
ther agreements"  ?  (If  so,  make  an  oral  statement  of  each.) 
What  is  the  counter  agreement  or  consideration  in  the  contract? 
(Make  an  oral  statement  of  the  counter  agreement.)  Who  makes 
this  agreement?  It  is  made  in  consideration  of  what  undertaking? 
What  would  be  the  effect  on  this  promise  should  the  initial 
agreement  fail?  Would  the  counter  agreement  still  be  binding 
on  the  second  party?  Would  he  have  to  make  payment  even 
though  no  fruit  be  delivered?  Payment  is  conditioned  upon 
what?  Make  an  oral  statement  of  a  suitable  conclusion  for  the 
above  agreement.  What  will  the  subscription  include?  Will 
it  be  necessary  to  have  a  witness  to  the  signatures? 

2.  Directions  for  Writing 

(1)  The  heading.  Draft  the  heading  or  opening 
paragraph  for  this  contract.  Give  the  name  and  address 
of  each  party;  state  that  the  contract  is  written  in  dupli- 
cate; give  the  date. 

The  form  may  be  somewhat  as  follows: 

CONTRACT 

This  Agreement,  Made  in  duplicate,  this  the  third  day  of 
June,  one  thousand  nine  hundred  and  nineteen,  entered  into  by 
and  between  Eli  Fox,  of  Afton,  Cahfornia,  of  the  first  part,  and 
Gus  Hall,  of  Yolo,  California,  of  the  second  part,  Witnesseth: 


SIMPLE  CONTRACTS  1S3 

(2)  Initial  agreement.  Draft  the  initial  agreement 
or  the  undertaking  of  Eli  Fox,  as  the  first  party  to  the  con- 
tract. Use  as  many  paragraphs  as  may  be  needed,  or  if 
convenient  use  only  one.  Be  careful  to  set  out  the  entire 
undertaking  of  Fox.  This  will  include  not  only  the  initial 
agreement  but  all  further  agreements  undertaken  by  him. 

The  initial  and  further  agreements  may  be  stated  as 
follows: 

iNiTiAii  AND  Further  Agreements 

First,  That  the  said  Eli  Fox,  in  consideration  of  the  agree- 
ments hereinafter  contained,  to  be  performed  by  Gus  Hall,  agrees 
to  sell  and  deliver  to  the  said  Gus  Hall  at  his  packing  and  canning 
factory  at  Yolo,  California,  fifty  thousand  pounds  of  ripe  and 
marketable  cherries  of  the  Melifera  variety,  the  same  to  be  de- 
livered at  the  rate  of  ten  thousand  pounds  a  day,  or  as  near  to 
that  amount  as  may  be,  the  date  of  delivery  beginning  on  the 
sixth  day  of  June,  1919,  and  continuing  daily  thereafter  until 
the  full  amount  of  fifty  thousand  pounds  of  cherries  have  been 
deUvered. 

Second,  That  the  said  Eli  Fox  further  agrees,  in  considera- 
tion of  the  undertaking  to  be  performed  by  Gus  Hall,  to  sell  and 
deUver  to  the  said  Gus  Hall  at  his  packing  and  canning  factory 
at  Yolo,  California,  twenty  thousand  pounds  of  ripe  and  mar- 
ketable figs  of  the  Calmyrna  variety,  to  be  delivered  at  the  rate 
of  two  thousand  pounds  a  day  from  the  first  to  the  tenth  day  of 
July,  1919,  or  as  near  to  that  amount  daily  as  may  be  practicable 
until  the  full  amount  of  twenty  thousand  pounds  of  figs  has  been 
delivered,  as  agreed. 

Third,  That  the  said  Eli  Fox  further  agrees,  in  consideration 
of  the  undertaking  to  be  performed  by  Gus  Hall,  to  sell  and  de- 
liver to  the  said  Gus  Hall  at  his  packing  and  canning  factory  at 
Yolo,  California,  sixty  thousand  pounds  of  ripe  and  marketable 
olives  of  the  Primero  variety,  to  be  delivered  at  the  rate  of  two 
thou3ftQd  pounds  daily  or  as  near  to  that  amount  as  may  be  prao 


134  APPLIED  BUSINESS  LAW 

ticable,  during  the  month  of  September,  1919,  until  the  full 
amount  of  sixty  thousand  pounds  of  oUves  has  been  deUvered. 
Fourth,  It  is  expressly  provided  in  this  agreement  that  the 
said  Eli  Fox  may  be  discharged  from  performing  the  undertak- 
ings herein  agreed  to  be  performed  in  the  event  that  the  fruits 
and  crops  herein  contracted  to  be  sold  to  the  said  Gus  Hall  shall 
become  destroyed  or  damaged  by  and  from  any  cause  over  which 
the  said  Eli  Fox  has  no  control,  such  as  inclement  weather  or 
other  natural  causes,  provided  such  natural  causes  were  not  con- 
nected and  related  to  any  act  of  negligence  or  want  of  reasonable 
diUgence  on  the  part  of  the  said  EU  Fox. 

(3)  Consideration,  or  counter  agreement.  Draft  the 
consideration  or  counter  agreement  of  Gus  Hall,  as  the 
second  party  to  the  contract.  Be  careful  to  set  out  the 
entire  undertaking  of  Hall  and  specify  clearly  the  time, 
place,  and  manner  of  payment,  and  the  amount  to  be 
paid  for  the  fruit. 

This  part  of  the  writing  may  be  set  out  somewhat  as 
as  follows: 

Counter  Agreement 

And  the  said  Gus  Hall,  in  consideration  of  the  undertakings  of 
the  said  EU  Fox,  as  herein  above  stated,  well  and  faithfully  per- 
formed, agrees: 

First,  To  pay  to  the  said  Eli  Fox  the  sum  of  three  cents  a 
pound  for  the  said  fifty  thousand  pounds  of  cherries,  immediately 
on  delivery  of  the  various  allotments  of  the  same,  the  total  pay- 
ment to  be  completed  at  the  completion  of  delivery  of  said  cher- 
ries. 

Second,  To  pay  to  the  said  Eli  Fox  the  sum  of  ten  cents  a 
pound  for  the  said  twenty  thousand  pounds  of  figs,  immediately 
upon  the  delivery  of  the  various  allotments  of  the  same,  total 
payment  to  be  Qompleted  at  the  Qompletiqii  pf  the  delivery  of  the 


SIMPLE  CONTRACTS  135 

Third,  To  pay  to  the  said  Eli  Fox  the  sum  of  five  cents  a 
pound  for  the  sixty  thousand  pounds  of  olives,  immediately  upon 
the  delivery  of  the  various  allotments  of  the  same,  total  pay- 
ment to  be  completed  at  the  completion  of  delivery  of  the  olives. 

(4)  Conclusion.  The  form  of  the  conclusion  is  practi- 
cally the  same  in  all  simple  contracts.  It  may  be  written 
somewhat  as  follows: 

In  Witness  Whereof,  The  said  parties  hereto  have  sub- 
scribed their  respective  signatures  the  day  and  year  first  above 
written. 

(5)  Subscription.  The  subscription  contains  the  sig- 
nature of  each  party  to  the  contract  and  of  any  person 
who  signs  as  a  witness.  The  signature  must  be  made  by 
each  party  himself,  or  by  his  lawful  agent  acting  for  him. 

In  no  case  should  the  student  sign  the  name  of  another 
unless  he  has  authority  to  sign  it,  or  unless  the  name  is  known  to 
be  a  pure  fiction. 

The  names  used  in  the  above  contract  are  mere  fictions  and, 
therefore,  the  student  may  write  them  in  as  though  authorized 
to  act  as  the  agent  for  each  party.  He  may  also  subscribe  his 
own  name  as  a  witness  to  the  contract. 

Signature  by  agent.  As  stated  above,  no  person  should 
sign  the  name  of  another  without  first  having  authority  to  act 
for  him. 

Assuming  that  authority  has  been  given  one  to  sign  for  another, 
then  the  manner  of  making  the  signature  will  determine  which 
party  is  liable.  The  signature  should  be  in  such  form  as  to  leave 
no  question  as  to  the  liability  of  the  principal.  The  principal's 
name  should  be  written  first,  with  the  name  of  the  agent,  or  his 
initials,   placed  after  it. 

Examples:  Correct  forms:  Ira  Jones,  acting  as  agent  for  Gus 
Hall,  may  sign  in  the  following  forms  and  render  the  principal 
liable: 


136  APPLIED  BUSINESS  LAW 

(a)  Gus  Hall,  b^  Ira  Jones,  Agent. 

(b)  Gus  Hall,  by  Ira  Jones;  or 

(c)  Gus  Hall,  by  his  agent,  Ira  Jones. 

Incorrect  forms.  The  agent  alone  may  be  held  liable  on 
any  of  the  following  forms: 

(a)  Ira  Jones,  Agent. 

(b)  Ira  Jones,  Agent  for  Gus  Hall. 

(c)  Ira  Jones,  Secretary  for  the  Gus  Hall  Packing  Company. 

3.  Directions  for  Briefing 

The  contract  in  Exercise  II  should  be  written  out  carefully 
on  legal-cap  paper,  and  after  the  work  has  been  approved,  it  may 
be  folded  and  briefed  as  directed  in  section  208,  and  placed  in  the 
file  for  future  reference. 

"  Budget  Method."  Should  it  be  desired  to  make  up  a  "Bud- 
get OF  Business  Papers,"  then  the  various  forms  written  out 
should  not  be  folded  but  placed  in  a  vertical  or  flat  file  or  port- 
folio until  directed  to  bind  them  in  covers  as  a  budget. 

The  "budget  method"  gives  better  results,  when  properly 
worked  out,  than  folded  filing,  as  it  shows  in  collected  form  all 
the  documents  of  a  given  group  of  business  papers. 

EXERCISE  III 

210.  Material  facts.  Irwin  James,  of  Palo  Alto, 
California,  desires  to  have  a  house  built  on  his  lot  at  1112 
College  Terrace.  Kieth  Lang,  a  contractor  of  San  Fran- 
cisco, offers  to  build  the  house  as  a  brick-veneered  frame 
dwelling  of  a  bungalow  type  according  to  plans  and  speci- 
fications drawn  by  Max  Norton,  architect.  The  house 
is  to  be  ready  to  be  occupied  on  or  before  the  first  day  of 
July,  1919,  otherwise  the  builder  is  to  pay  $100  a  month, 
or  fraction  of  month,  that  may  elapse  after  July  1,  1919, 
before  the  house  is  completed.     The  consideration  for  the 


SIMPLE  CONTflACTS  137 

construction  of  the  house  is  to  be  $12,000.00,  to  be  paid, 
two  thousand  dollars  when  the  foundation  and  cement 
work  is  completed,  two  thousand  dollars  when  the  super- 
structure is  roofed  and  enclosed,  two  thousand  when  the 
glazing  and  plastering  are  completed,  and  the  balance, 
$6000,  to  be  paid  when  the  house  is  fully  completed. 
James  accepts  the  offer  on  the  tenth  day  of  February,  1919. 

1.  Analysis  of  Facts 

As  TO  Substance  :  (1)  Who  are  the  parties  to  the  negotiation? 
Give  the  address  of  each.  (2)  Is  there  an  offer?  By  whom 
made?  What  is  the  offer?  (3)  To  whom  was  the  offer  made? 
Has  it  been  accepted?  By  whom?  When?  In  what  manner? 
(4)  Is  there  mutual  agreement?  Is  there  a  contract?  (5)  Is 
the  subject  or  purpose  of  the  contract  legal?  (6)  What  is  the  con- 
sideration for  the  undertaking  of  Lang?  (7)  Is  the  contract  re- 
quired by  law  to  be  in  writing  in  order  to  make  it  valid  and  en- 
forceable? 

As  TO  Form:  How  many  parts  will  there  be  in  the  written 
form  of  this  contract?  State  orally  what  the  heading  should  con- 
tain. State  the  substance  of  the  initial  agreement.  Who  makes 
this  agreement?  Does  he  make  any  further  agreements? 
What  is  the  counter  agreement?  Who  makes  this  agreement? 
For  what  is  this  consideration  to  be  given?  What  would  be  the 
effect  on  the  counter  agreement  of  a  failure  of  the  initial  agree- 
ment? Would  Irwin  James  still  be  liable  for  the  payment  of  the 
consideration?  Upon  what  is  payment  conditioned?  State  a 
form  of  conclusion  for  this  contract.  What  will  the  subscrip- 
tion include? 

2.  Directions  for  Writing 

(1)  Heading.  Write  the  heading.  Use  the  form 
given  in  section  206  as  a  model.  The  framework  of  this 
form  of  heading  should  be  memorized  so  it  can  be  used 
readily  without  reference  to  any  particular  model. 


1S8  APPLIED  BUSINESS  LAW 

(2)  Initial  agreement.  Write  the  initial  agreement. 
The  arrangement  may  be  as  follows: 

First,  That  the  said  party  of  the  first  part,  for  and  in  con- 
sideration of  the  agreements  herein  stated,  to  be  performed  by 
the  party  of  the  second  part,  agrees  to  construct  and  finish  in  good 
and  workmanlike  manner  for  the  said  party  of  the  second  part, 
and  on  a  lot  belonging  to  him,  known  as  1112  College  Terrace, 
in  the  City  of  Palo  Alto,  California,  one  brick-veneered  frame 
dweUing  house,  of  a  bungalow  type,  in  accordance  with  the  plans 
and  specifications  drawn  by  Max  Norton,  an  architect  of  the 
same  place,  and  hereto  annexed  as  a  part  of  this  agreement.  The 
building  is  to  be  constructed  of  good  and  substantial  materials 
in  accordance  with  the  specifications  of  the  architect,  and  to  be 
completed  ready  for  occupancy  on  or  before  the  first  day  of  July, 
1919. 

Second,  That  the  party  of  the  first  part  further  agrees  that  in 
the  event  of  his  failure  to  complete  the  building  ready  to  be 
occupied  by  the  above  specified  date,  he  will  pay  to  the  party  of 
the  second  part  $100,  as  liquidated  damages,  for  such  delay  for 
every  month  or  fraction  thereof,  the  full  completion  of  the  build- 
ing is  delayed  beyond  the  date  above  specified. 

(3)  Consideration,  or  counter  agreement.  Write  the 
counter  agreement.  The  wording  and  arrangement  may 
be  as  follows: 

That  the  party  of  the  second  part,  in  consideration  of  the  fore- 
going, agrees  to  pay  to  the  said  party  of  the  first  part  for  the  same 
the  sum  of  twelve  thousand  dollars  (S12,000.00),  lawful  money 
of  the  United  States,  in  the  following  payments:  (1)  The  sum 
of  two  thousand  dollars  when  the  foundation,  cellars,  basement, 
and  other  cement  work  are  completed;  (2)  the  sum  of  two  thou- 
sand dollars  when  the  superstructure  is  roofed  and  enclosed; 
(3)  the  sum  of  two  thousand  dollars  when  the  glazing  and  plas- 
tering are  completed  and  approved  by  the  architect,  Max  Nor- 
ton; and  (4)  the  balance  of  six  thousand  dollars  to  be  paid  when 


SIMPLE  CONTRACTS  139 

the  building  is  fully  completed  aud  approved  by  the  architect 
in  accordance  with  the  plans  and  specifications  as  provided  herein, 

(4)  Conclusion.  Write  the  conclusion  in  the  usual 
form.    This  form  should  be  memorized. 

(5)  Subscription.  Leave  blank  rulings  for  the  sig- 
natures of  the  parties. 

After  the  writing  has  been  approved,  fold  and  brief,  or  file 
without  folding  as  already  directed.  Remember  the  cautions 
about  careful  work.  Do  not  submit  work  that  contains  errors, 
erasures,  or  other  indications  of  a  lack  of  care.  If  you  do,  you 
should  be  asked  to  rewrite  it. 

EXERCISE  IV 

211.  Material  facts.  Ole  Petersen,  of  Appomattox, 
Virginia,  writes  under  date  of  February  9,  1919,  to  Queed 
Robson,  Roanoke,  Virginia,  asking  quotations  on  cross- 
ties  and  suggesting  that  he  has  for  sale  10,000  first  class 
oak  ties.  Robson  replies  February  10th,  offering  one  dol- 
lar each  for  first  class  oak  ties,  7  ft.  long,  7  inches  thick, 
and  with  not  less  than  7  inch  faces,  in  lots  of  from  1000  to 
10,000  ties,  the  same  to  be  delivered  at  the  tracks  of  the 
Norfolk  &  Western  Railway  at  Appomattox,  where  they 
can  be  inspected  and  accepted,  at  the  rate  of  1000  ties  a 
month  until  the  contract  is  filled.  Petersen  immediately 
accepts  this  offer  and  agrees  to  supply  10,000  ties.  He 
requests  Robson  to  send  written  form  of  contract  in 
duplicate.  The  letter  of  acceptance  was  dated  Febru- 
ary 11,  1919. 

1.  Analysis  of  Facts 

As  TO  Substance:  (1)  Name  the  parties  to  the  negotiations. 
(2)  Is  there  an  offer?    From  whom?    Was  Petersen's  letter  of 


140  APPLIED  BUSINESS  LAW 

February  9th  an  offer  to  supply  crossties,  or  was  it  merely  an  in- 
quiry? What  is  the  offer?  (3)  To  whom  was  the  offer  made? 
Has  it  been  accepted?  By  whom?  When?  For  how  many 
crossties?  (4)  Have  the  parties  reached  an  agreement?  Is 
there  a  contract?  (5)  Is  the  purpose  of  the  contract  legal? 
(6)  What  is  to  be  the  consideration  for  the  undertaking 
of  Petersen?  (7)  Must  the  contract  be  in  writing  to  be  valid? 
Would  it  make  any  difference  if  the  ties  were  not  already  pre- 
pared but  had  to  be  made  and  prepared  for  deUvery  after  the 
agreement  was  reached?  Does  a  contract  for  work,  labor,  and 
materials,  have  to  be  in  writing  to  render  it  enforceable? 

As  TO  Form:  Name  the  parts  required  for  this  written  con- 
tract. Make  an  oral  statement  of  each  part  in  the  order  they 
are  to  appear  in  the  contract.  Who  makes  the  initial  agreement? 
Who  the  counter  agreement. 

2.  Directions  for  Writing 

Write  a  first  draft  of  each  part  of  the  above  agreement,  work- 
ing each  part  out  separately.  Reread  for  possible  errors  or  omis- 
sions. Next,  rewrite  all  together  in  regular  form.  Brief  and 
submit  for  approval.  After  approval,  mark  the  contract  "Exer- 
cise IV,"  and  file  with  the  others. 

EXERCISE  V 

212.  Material  facts.  Sam  Tate,  of  El  Centro,  Cali- 
fornia, has  for  sale  1000  bales  of  500  pounds  each  of  Im- 
perial long-staple  cotton.  He  issues  a  circular  letter  under 
date  of  February  10,  1919,  inviting  bids  on  the  cotton, 
f.  o.  b.  cars  at  El  Centro.  Uriah  Vrooman,  of  Boston, 
mails  an  offer  of  30c.  a  pound  under  date  of  February  15, 
1919,  which  was  received  by  Tate  on  the  20th.  The  cot- 
ton was  to  be  shipped  at  the  rate  of  fifty  bales  a  week,  and 
to  be  paid  for  by  draft  on  receipt  of  the  bills  of  lading, 
forwarded  from  El  Centro.    Tate  writes  accepting  Vroo- 


SIMPLE  CONTRACTS  141 

man's  offer,  providing  that  in  case  the  cotton  is  lost  or 
destroyed  through  no  fault  of  his  the  contract  is  to  be  dis- 
charged. The  letter  of  acceptance  is  posted  February  21st, 
but  before  it  reaches  Vrooman  he  wires  revoking  his  offer. 
This  telegram  is  received  by  Tate  on  February  24,  1919, 
and  the  letter  of  acceptance  reaches  Vrooman  on  the  25th. 

Analysis:  Analyze  the  facts  carefully,  first,  as  to  substance; 
second,  as  to  form.  Is  there  an  offer?  By  whom?  Is  there  an 
acceptance?  Did  the  acceptance  become  effective  before  the 
telegram  revoking  the  offer  reached  Tate?  When  does  an  ac- 
ceptance become  effective?  When  does  a  revocation  become  ef- 
fective, the  moment  it  is  transmitted,  or  not  until  it  is  received 
by  the  offeree? 

"Is  there  a  contract?"  That  is  the  question  to  be  decided 
here.  Is  it  required  to  be  in  writing?  Are  the  letters  a  sufficient 
memorandum  of  the  agreement  to  render  it  enforceable? 

Directions  for  Writing:  Taking  as  granted  that  there  is 
a  valid  agreement  between  the  parties,  write  out  the  agreement 
in  duplicate,  following  the  directions  given  in  the  preceding  ex- 
ercises. After  it  is  properly  written  and  approved,  brief  and 
file,  or  without  briefing,  file  with  the  other  forms,  marking  it 
"Exercise  V." 

EXERCISE  VI 

213.  Material  facts.  The  following  advertisement 
appeared  in  Boot  and  Shoe  Recorder. 

FOR  SALE,  a  large  and  growing  boot  and  shoe  busi- 
ness; good  location,  rent  reasonable,  with  long  term 
lease.  First  class  stock  and  fixtures,  high  class  trade. 
Address,  X  c/o  The  Recorder,  Boston. 

On  May  10th,  Ward  McGrew,  of  Salem,  Oregon,  wrote 
asking  an  opportunity  to  investigate  the  business,  and 
offering  fifty  per  cent  of  the  cost  value  of  stock  and  fixtures, 


142  APPLIED  BUSINESS  LAW 

if  the  proposition  suited  him.  On  May  19th  he  received 
a  telegram  from  Otto  Piez,  Racine,  Wisconsin,  accepting 
his  offer,  and  inviting  him  to  come  and  investigate  and 
arrange  for  taking  an  inventory  at  once. 

Directions:  Analyze  the  facts  and  determine  if  there  is  a 
contract.  Look  for  all  the  essential  elements  of  a  vaUd  contract. 
Go  over  each  element  carefully.  Be  sure  there  is  an  agreement 
with  nothing  yet  remaining  to  be  done  in  order  to  render  it  bind- 
ing on  both  parties.  Distinguish  between  an  unconditional  ac- 
ceptance and  an  invitation  to  investigate.  Examine  the  offer 
carefully.    Is  it  conditional  or  unconditional? 

After  your  analysis,  if  you  find  all  the  elements  of  a  valid  con- 
tract present,  you  may  then  reduce  the  agreement  to  written 
form.  Review  section  204,  in  connection  with  the  above 
analysis. 

Every  step  in  your  work  must  be  taken  with  as  much  care  as 
though  it  were  to  be  passed  upon  by  the  keenest  legal  minds  of 
the  supreme  court  of  appeals  in  your  own  state,  or  in  the  state 
in  which  the  contract  is  supposed  to  be  made. 

EXERCISE  VII 

214.  Material  facts.  Andrew  Brown,  of  New  York 
City,  advertises  for  a  manager  to  take  charge  of  a  general 
department  store  for  a  period  of  one  year,  or  as  long  there- 
after as  mutually  agreeable,  at  a  salary  of  $12,000  a  year, 
service  to  begin  March,  1  1919.  Carl  Dole,  of  Denver, 
offers  his  services  and  gives  satisfactory  references.  Brown 
accepts  the  application  February  11,  1919,  and  asks  to 
have  the  agreement  put  in  writing  so  that  it  may  be  signed 
by  each  of  the  parties. 

Directions:  Analyze  the  facts  and  determine  if  there  is  a 
contract.  If  so,  is  it  required  by  law  to  be  in  writing  in  order  to 
render  it  enforceable? 


SIMPLE  CONTRACTS  143 

The  above  agreement  was  drafted  in  the  form  of  a  contract 
by  Dole,  as  follows: 

"Contract,  Made  the  Uth  day  of  February,  1919,  by  and  be- 
tween Andrew  Brown,  of  New  York  City,  of  the  first  part.,  and 
Carl  Dole,  of  Denver,  Colorado,  of  the  second  part.  In  These 
Words: 

"The  party  of  the  second  part  agrees  to  and  with  the  party 
of  the  first  part,  to  furnish  his  services  to  the  party  of  the  first 
part  as  manager  of  a  General  Department  Store  to  be  located  at 
Cadillac  Place,  Detroit,  Michigan,  for  the  period  of  one  year,  or 
twelve  calendar  months,  beginning  March  1,  1919,  and  ending 
February  29,  1920;  and  said  party  of  the  second  part  promises 
and  agrees  to  perform  faithfully  all  the  duties  incident  to  the 
said  position  as  business  manager,  or  in  the  event  of  his  inabihty 
to  do  so  through  illness  or  other  cause,  to  give  immediate  notice 
of  the  fact  to  the  party  of  the  first  part. 

"And  the  party  of  the  first  part  agrees  to  pay  to  the  party  of 
the  second  part,  for  the  services  as  business  manager  properly 
rendered,  the  sum  of  twelve  thousand  dollars  ($12,000.00)  as 
follows :  The  sum  of  one  thousand  dollars  on  the  tenth  day  of 
April,  1919,  and  the  sum  of  one  thousand  dollars  on  or  before 
the  tenth  day  of  each  succeeding  calendar  month  until  the  expir- 
ation of  the  period  of  one  year  above  mentioned,  the  last  pay- 
ment to  be  on  the  29th  day  of  February,  1919,  or  within  ten  days 
thereafter. 

"For  the  true  and  faithful  performance  of  all  the  provisions 
and  promises  of  the  foregoing  agreement,  the  parties  to  this  con- 
tract bind  themselves  each  unto  the  other  in  the  sum  of  one  thou- 
sand dollars  ($1000.00),  as  a  fixed  and  liquidated  amount  of 
damages  to  be  paid  by  the  faiUng  party  to  the  other  in  the  event 
of  a  breach  by  either  party  to  this  agreement. 

"  In  Witness  Whereof,  The  parties  to  this  agreement  have 
hereunto  set  their  hands  to  these  writings  in  duplicate,  this  the 
day  and  year  first  above  written. 
Witnessed  by  Signed  by 

f  f  r  f  r  f » r  •  •  f  r  •  f  f  r  f  •••'.'•'  r  f  f  f  >  f .» f 


144  APPLIED  BUSINESS  LAW 

Analysis:  (1)  Does  the  contract  as  written  by  Dole  contain 
all  the  essentials  of  a  well  written  contract?  Name  these 
essentials  (see  sec.  205).  Give  the  heading  of  this  contract. 
What  does  it  contain?  Does  it  state  that  the  contract  is  to  be 
signed  in  dupUcate? 

(2)  State  the  initial  agreement.  Who  makes  this  agreement? 
Is  the  contract  to  be  performed  within  the  year?  Is  such  a  con- 
tract required  by  the  statute  of  frauds  to  be  in  writing?  Is  Dole 
bound  to  perform  his  obligations  at  all  events?  What  may  ex- 
cuse him  from  performance?  What  act  must  he  do  to  relieve 
himself  from  performance  or  from  Uabihty  for  non-performance? 

(3)  Give  the  counter  agreement,  or  consideration  for  the  under- 
taking of  Dole.  Who  undertakes  this  agreement?  What  are 
the  conditions  for  his  performance?  What  will  excuse  him  from 
performance? 

(4)  State  the  penalty  clause  of  this  contract.  Is  such  a  clause 
legal?  Is  it  enforceable?  May  the  parties  to  the  contract  agree 
between  themselves  upon  what  they  would  consider  reasonable 
damages  in  the  event  of  a  breach  of  the  agreement  by  one  of  the 
parties?  If  the  agreed  damages  are  greater  than  the  actual  dam- 
ages suffered  as  a  result  of  the  breach,  would  a  court  of  law  per- 
mit a  recovery  upon  such  an  obligation?  State  the  agreed 
penalty. 

(5)  State  the  conclusion.  Is  it  in  any  way  different  from  the 
forms  you  have  already  had?    In  what  way? 

As  to  Language  :  Is  the  statement  of  the  initial  agreement  in 
language  clear  and  exact?  Point  out  an  error  or  an  ambiguous 
expression.  Does  it  make  the  meaning  doubtful  or  uncer- 
tain? What  ambiguity  is  found  in  the  counter  agreement? 
What  change  would  you  suggest  in  the  wording  or  arrange- 
ment of  these  parts? 

Directions:  Rearrange  and  rewrite  each  part  of  the  above 
form  of  contract  with  a  view  to  improving  it.  After  you  have 
completely  rewritten  it,  compare  your  draft  carefully  with  the 
original  and  point  out  points  of  superiority  in  your  own  work. 

After  your  work  has  been  approved,  brief  and  file  it  with  your 
other  forms  as  "Exercise  VJJ," 


SIMPLE  CONTRACTS  145 

EXERCISE  VIII 

216.  Material  facts.  Elton  Farmer,  of  Shreveport, 
Louisiana,  sends  out  circular  letters  under  date  of  Feb- 
ruary 11,  1919,  inviting  orders  for  Al  cypress  lumber  at 
$50  per  M  board  feet,  f .  o.  b.  cars  at  Shreveport,  in  lots  of 
not  less  than  10,000  feet.  Gib  Hohnes,  of  Memphis,  Ten- ' 
nessee,  on  receipt  of  this  letter,  writes  under  date  of  Feb- 
ruary 14th,  "accepting  the  offer,"  and  asks  for  100,000 
feet  Al  cypress  lumber,  delivered  f.  o.  b.  river  packet 
at  Shreveport.  On  February  15th,  Farmer  writes  that 
he  cannot  supply  lumber  at  the  price  quoted  in  the  cir- 
cular letter,  but  offers  to  fill  the  order  for  Hohnes,  f .  o.  b. ! 
river  packets  at  $60  a  thousand.  On  February  17th, ' 
Hohnes  wires,  "Accept  your  offer,  50,000  feet  at  $60  a 
thousand,  f.  o.  b.  river  packets,  Shreveport;  delivery  on 
or  before  March  1,  1919.  Contract  in  duplicate  for- 
warded.   Gib  Holmes." 

Analysis,  as  to  Substance:  (1)  Who  are  the  parties  to  the 
negotiation?  (2)  Is  there  evidence  of  an  offer?  By  whom?  Did 
the  circular  letter  constitute  an  offer  to  supply  the  lumber  de- 
scribed therein  at  the  price  named?  (3)  What,  in  fact,  was  the 
offer?  To  whom  made?  Is  there  evidence  that  it  was  accepted? 
(4)  Did  Farmer  have  a  right  to  vary  or  revoke  the  price  quoted 
in  his  circular  letter  after  receiving  the  letter  from  Holmes  or- 
dering 100,000  feet  of  the  lumber?  (5)  Supposing  Farmer's  cir- 
cular letter  to  have  been  an  offer,  would  the  letter  from  Holmes 
under  date  of  the  14th  have  been  a  sufficient  acceptance 
of  the  offer?  How  about  the  terms  of  delivery?  After  receiving 
this  letter,  had  Farmer  a  right  to  change  the  price  of  the  lumber? 
Would  delivery  f.  o.  b.  river  packet  be  more  expensive  than 
f.  o.  b.  cars? 

(6)  Farmer's  letter  of  the  15th  was  a  specific  offer  of  a  definite 
^.rnount  of  lumber  of  a  given  grade  at  a  fixed  price  and  to  l?e  de- 


146  APPLIED  BUSINESS  LAW 

livered  in  a  particular  manner.  Was  the  telegram  from  Holmes 
a  sufficient  acceptance?  Was  there  any  variation  between  the 
terms  of  the  ofifer  and  the  acceptance? 

(7)  At  this  point,  is  there  a  contract  or  mutual  agreement  be- 
tween the  parties?  Has  Farmer  a  right  to  refuse  to  sell  or  de- 
liver the  50,000  feet  of  lumber  ordered  by  Holmes?  What  will 
be  the  effect  if  he  signs  the  contract  Holmes  sends? 

As  TO  Form:  Suppose  you  are  asked  to  draft  a  form  of  con- 
tract for  Holmes,  how  many  parts  will  you  use?  Name  them. 
What  will  the  heading  contain?  Give  the  substance  of  the  initial 
agreement.  Who  makes  this  agreement?  Does  he  make  any 
further  agreements?  Are  there  any  conditions  or  reservations 
in  his  undertaking?  What  is  the  counter  agreement?  Who 
makes  this  agreement?  Would  the  counter  agreement  be  bind- 
ing in  the  event  of  a  failure  of  the  initial  agreement?  Give  the 
form  of  conclusion. 

Directions:  Write  the  contract  in  duplicate  and  in  the  usual 
form,  stating  all  the  agreements  in  clear,  exact  language. 

Suppose  your  "rough  draft"  is  somewhat  like  the  following 
form.    You  are  to  rewrite  it  and  eliminate  all  ambiguous  parts. 

CONTRACT 

This  Agreement,  Made  in  duplicate,  this  the  seventeenth 
day  of  February,  1919,  entered  into  by  and  between  Elton  Far- 
mer, Shreveport,  Louisiana,  of  the  first  part,  and  Gib  Holmes, 
Memphis,  Tennessee,  of  the  second. 

WITNESSETH,  that  the  party  of  the  first  part,  in  consideration 
of  the  agreement  of  the  party  of  the  second  part  as  hereinafter 
set  forth,  agrees  to  sell,  and  by  this  contract  does  sell  to  the  party 
of  the  second  part,  50,000  feet  cypress  lumber  of  first  quality,  and 
agrees  to  deUver  the  same  f .  o.  b.  interstate  railway  cars  at  Shreve- 
port, La.,  or  f.  o.  b.  river  packet  at  the  same  place,  at  the  elec- 
tion of  the  said  party;  the  delivery  to  be  to  the  order  of  the  pur- 
chaser, on  or  before  March  1,  1919. 

That  in  consideration  of  the  foregoing  agreement  on  the  part 
of  the  party  of  the  first  part,  the  party  of  the  second  part  agrees 


SIMPLE  CONTRACTS  147 

to  pay  to  the  said  party  of  the  first  part  the  sum  of  sixty  dollars 
($60.00)  a  thousand  board  feet  for  the  entire  50,000  feet  of  first 
class  cypress  lumber  delivered  as  above  agreed,  and  upon  re- 
ceipt of  an  order  bill  of  lading  covering  such  shipment  or  ship- 
ments, the  total  payment  of  $3000.00  to  be  in  full  payment  for 
the  entire  shipment  or  shipments  of  the  above  described  lumber. ' 

And  it  is  further  agreed  by  and  between  the  parties,  that  in  the 
event  of  the  total  destruction,  or  the  destruction  or  damage  of 
any  part  of  such  lumber  at  or  before  the  time  of  deUvery,  through 
no  fault  of  the  party  of  the  first  part,  he  shall  be  relieved  from 
all  hability  arising  from  a  non-performance  of  the  undertaking 
above  agreed  upon,  and  the  contract  to  that  extent  discharged. 

In  Witness  Whereof,  The  parties  to  this  agreement  have 
hereunto  set  their  hands  the  day  and  year  first  above  written. 

Signatures  of , 

the  Parties ' 

Further  Analysis:  Is  there  any  doubt  or  uncertainty  in  the 
language  of  the  initial  agreement?  Point  out  the  ambiguous  part 
and  suggest  wording  that  will  make  the  meaning  clear.  Is  it 
clear  which  party  shall  have  the  right  to  elect  whether  the  lum- 
ber be  delivered  on  cars  or  on  river  packets?  If  not,  use  language 
that  will  make  this  point  clear. 

Is  there  unnecessary  repetition  in  the  counter  agreement? 
Suggest  a  rearrangement  and  wording  that  will  render  the  state- 
ment clear  and  concise.    Rewrite  the  entire  contract. 

When  it  has  been  approved,  mark  it  "Exercise  VIII,"  and 
file. 

EXERCISE  IX 

216.  Material  facts.  Iver  Johnson,  of  Detroit,  Mich- 
igan, is  a  dealer  in  rebuilt  automobiles  and  motor  trucks. 
He  sends  out  descriptive  circulars  from  time  to  time  listing 
the  various  cars  he  has  on  hand  ready  for  immediate  de- 
livery.   Kurt  Leeds,  of  Cleveland,  Ohio,  in  reliance  on  the 


148  APPLIED  BUSINESS  LAW 

statements  and  descriptions  in  Circular  No.  7-F,  orders 
a  rebuilt  Cadillac  listed  at  $1100,  but  specifies  certain 
changes  and  additions  to  be  made,  as  shown  by  the  follow- 
ing letter: 

"Cleveland,  February  10,  1919. 
Mr.  Tver  Johnson, 
Detroit,  Mich. 

Dear  Sir:  I  have  selected  from  your  Circular  No.  7-F,  the  car 
listed  therein  as  No.  234,  rebuilt  Cadillac,  $1100,  as  the  one  I 
desire,  provided  you  will  add  Max  Farad  Electric  equipment, 
and  also  remove  the  jump-seats  and  tonneau  seat  and  rebuild 
the  back  of  the  body  for  camp  equipment  with  two  Pullman 
sleeping  berths,  according  to  the  enclosed  diagrams  and  speci- 
fications. 

Yours,  truly, 
KL/S.  Kurt  Leeds " 

To  this  letter  Johnson  replies  offering  to  make  the  desired 
changes  and  additions  at  an  increased  cost  of  $400;  the  total 
cost  of  the  rebuilt  car  f.  o.  b.  Detroit,  to  be  $1500.  This  letter 
was  of  date  February  15th.  On  the  17th,  Leeds  wrote  accepting 
the  offer  and  asking  to  have  the  car  ready  for  deUvery  within 
ten  days  from  that  date. 

Analysis:  Is  there  an  agreement?  State  the  offer;  the  ac- 
ceptance; the  consideration.  Is  the  agreement  legal?  Is  it  re- 
quired to  be  in  writing?  Would  the  correspondence  between  the 
parties  be  a  sufficient  memorandum  to  render  the  contract  bind- 
ing? Is  the  contract  made  in  Ohio  or  in  Michigan?  If  in 
Michigan,  it  must  be  in  writing  as  the  amount  involved  is  more 
than  $50  as  provided  in  the  Michigan  statute  of  frauds,  unless  the 
contract  is  for  "work,  labor,  and  materials,"  and  not  the  sale  of 
a  finished  article.   Which  is  it? 

Directions  :  Write  the  contract  in  duplicate  stating  the  under- 
taking of  each  party.  Use  clear,  exact  language.  After  your 
work  has  been  approved,  mark  it  "Exercise  IX/'  and  file. 


SIMPLE  CONTRACTS  149 

EXERCISE  X 

217.  Material  facts.  Marx  Nieman,  Pueblo,  Colorado, 
advertised  for  4000  tons  first  grade  washed  coke,  to  be 
delivered  at  the  rate  of  fifty  tons  a  week  at  the  Union  Iron 
Works,  San  Francisco,  California.  Otto  Parks,  agent  for 
the  Victor  Fuel  Company,  Del  Agua,  Colorado,  offered 
by  letter  of  February  12,  1916,  to  supply  the  4000  tons 
of  coke  to  be  delivered  f.  o.  b.  Santa  Fe  cars  at  Del  Agua, 
Colorado,  at  the  rate  of  50  tons  weekly  at  $10  a  ton,  pay- 
ment to  be  made  on  delivery  of  bill  of  lading  to  Nieman  at 
Pueblo,  and  shipments  to  begin  March  1,  1916.  Nieman 
accepted  this  offer  February  14,  1916,  and  asked  to  have 
a  contract  in  duplicate  forwarded  for  his  signature.  Parks 
stipulated  against  liability  in  case  of  strikes,  explosions 
or  other  delays  arising  through  no  fault  of  the  fuel  com- 
pany. 

Analysis:  (1)  Name  the  parties  to  the  contract.  Is  Parks  a 
party  to  the  agreement?  Suppose  he  signed  as  "Otto  Parks, 
agent  for  the  Victor  Fuel  Company,"  would  the  company  be  lia- 
ble? Suppose  he  signed,  "Victor  Fuel  Company,  by  Otto  Parks, 
Agent,"  would  this  make  any  difference? 

(2)  Is  there  an  agreement  between  the  parties?  (3)  Is  the 
purpose  of  the  contract  lawful?  (4)  What  is  the  consideration? 
(5)  Is  the  contract  required  to  be  in  writing? 

What  is  the  initial  agreement?  The  counter  agreement? 
Which  party  makes  the  initial  agreement?  State  the  conditions 
or  provisions  against  liability  for  failure  to  deliver?  Are  there 
any  provisions  for  Uquidated  damages  in  case  of  a  breach  of  the 
contract? 

Directions:  Write  the  contract  in  dupUcate.  Look  it  over 
carefully  for  possible  omissions  or  mistakes.  Make  all  state- 
ments in  clear,  exact  language.  Brief  and  present  for  approval. 
After  approval,  mark  it  "Exercise  X,"  and  file. 


150  APPLIED  BUSINESS  LAW 

,   EXERCISE  XI 

218.  Explanation.  The  following  form  of  contract, 
we  will  suppose,  was  drafted  and  submitted  to  Ole  Peter- 
sen for  his  signature,  as  indicated  in  Exercise  IV.  Upon 
examination,  he  suggested  the  changes  indicated  and  asked 
to  have  the  contract  rewritten  before  he  would  sign  it. 

Read  the  form  with  the  directions  and  make  the  cor- 
rections suggested  in  the  notes  which  follow  the  form. 

ARTICLES  OF  AGREEMENT 

Tms  Agreement,  written  in  duplicate, ^  made  and  entered 
into  by  and  between  Ole  Petersen,  of  Appomattox,  Virginia,  and 
Queed  Robson,  of  Roanoke,  Virginia,''  scilicet: 

» First,  That  in  consideration  of  *  $1.00  in  hand  paid  and  other 
good  and  valuable  considerations,  the  agreements  by  and  be- 
tween the  said  *  Ole  Petersen  and  the  said  Queed  Robson,  is  as 
follows,  viz : 

'  Second,  That '  the  said  ^  party  of  the  first  part  is  ^  to  cut, 
hew,  make  and  manufacture  *  white  oak  crossties  of  a  first  class 
grade  and  of  a  standard  size,  viz.,  7  feet  long,  7  inches  thick  from 
face  to  face,  and  with  not  less  than  7  inch  hewed  face,  and  deliver 
the  same  at  the  freight  yards  and  siding  of  the '  Railwaj'  at 
Appomattox,  Virginia,  ^  where  they  are  to  be  inspected  and 
accepted  "  at  the  rate  of  1000  ties  a  month,  beginning  with  May, 
1916,  and  continuing  until  the  full  number  of  10,000  crossties 
has  been  deUvered. 

^  Third,  That  the  said  ^  party  of  the  first  part  further  agrees, 
"  in  consideration  of  the  undertakings  of  the  party  of  the  second 
part,  to  load  the  said  crossties  "  on  flat  cars  furnished  by  the  " 
Railway  Company  "  each  lot  to  be  loaded  within  ten  days  after 
they  have  been  inspected  and  accepted  i** 

'  Fourth,  That  the  said  ^^  party  of  the  second  part  agrees 
to  receive  and  accept, ^^  upon  proper  inspection,  and  pay  for 
all  first  class  ties  deUvered  "  the  sum  of  fifty  cents  each 


SIMPLE  CONTMCTS  151 

upon  acceptance,  and  a  further  sum  of  fifty  cents  each  when 
the  ties  have  been  loaded  as  provided  above,  '^  the  first  sum  to  be 
due  and  payable  immediately  upon  acceptance  of  the  ties  at  the 
railway  siding  and  the  remainder  to  be  paid  upon  receipt  of  a 
bill  of  lading  for  the  said  crossties. 

In  Testimony  Whereof,  the  parties  to  this  agreement  have 
hereunto  set  their  hands  '» and  seals  the  day  and  year  first  above 
written. 

Witnessed  by  (Seal)  ^o 

(Seal)  20 

Notes  and  Directions:  The  following  additions  and  changes 
are  to  be  inserted  at  the  points  corresponding  with  the  respective 
numbers. 

(1)  Insert,  "the  11th  day  of  February,  1919." 

(2)  Change  "sciUcet"  to  "witnesseth." 

(3)  Omit  the  ordinals,  "First,"  etc. 

(4)  Omit,  "$1.00.  in  hand  paid  and  other  good  and  valuable 
considerations." 

(5)  Omit,  "Ole  Petersen  and  the  said  Queed  Robson,  is  as 
follows,  viz.,"  and  insert  "parties." 

(6)  Omit  "that." 

(7)  Omit  "party  of  the  first  part,"  and  insert  "Ole  Petersen." 
(7a)  Change  "is"  to  "agrees." 

(8)  Omit  "white"  and  insert  "10,000." 

(9)  Insert  "Norfolk  &  Western." 

(9a)  Insert  "at  the  rate  of  not  fewer  than  1000  ties  a  month, 
beginning  with  May,  1919,  and  continuing  until  the  full  number 
of  10,000  crossties  has  been  delivered." 

(10)  Insert  a  period  here. 

(11)  Omit  "in  consideration  of  the  undertakings  of  the  party 
of  the  second  part." 

(12)  Insert  "after  they  have  been  inspected  and  accepted." 

(13)  Insert  "Norfolk  &  Western." 

(14)  Insert  "for  that  purpose." 

(14a)  Insert  "or  as  soon  thereafter  as  cars  are  provided," 

(15)  Change  to  "Queed  Robson." 


15!^  APPLIED  BUSINESS  LAW 

(16)  Insert  "the  ties." 

(17)  Insert  "as  provided  above." 

(18)  Insert  "and  to  pay  for  second  class  ties  the  sum  of  forty- 
cents  each  as  accepted." 

(19)  Omit  "and  seals." 

(20)  Omit  the  word  "(Seal.)" 

Directions:  Rewrite  the  above  contract,  making  all  nec- 
essary changes  as  indicated,  and  compare  your  finished  draft 
with  the  original  to  see  that  there  have  been  no  omissions.  After 
the  new  draft  has  been  approved,  brief,  mark  it  "Exercise  XI," 
and  file  with  your  other  forms. 

EXERCISE  XII 

219.  Explanation.  The  California  Fruit  Company, 
of  Sacramento,  desires  to  open  sales  branches  for  the  dis- 
tribution of  their  products  in  various  eastern  cities.  The 
principal  products  of  this  concern  are  fresh  fruits,  canned 
and  dried  fruits,  and  various  by-products  such  as  pre- 
serves, flavoring  extracts,  fruit-juices,  fruit-acids,  vinegars, 
distillate,  and  other  like  products.  The  first  branch  office 
is  to  be  established  at  Pittsburg,  Pennsylvania,  and  to  be 
known  as  the  Pittsburg  Produce  Company.  The  manager 
wishes  a  form  of  contract  for  the  Pittsburg  branch  and 
desires  it  to  be  in  such  form  that  it  may  be  used  as  a  gen- 
eral form  for  the  establishment  of  other  branch  offices,  or 
sales  agencies.    The  following  form  has  been  submitted. 

ARTICLES  OF  AGREEMENT 

This  Agreement,  Made  ^  by  and  between  the  California 
Fruit  Company,  of  Sacramento,  California,  *  and  the  Pittsburg 
Produce  Company,  of  Pittsburg, '  Pennsylvania,  Witnesseth: 

That  the  party  of  the  first  part  *  agrees  to  ship  and  consign  to 
the  said  party  of  the  second  part  as  selling  agent  for  the  party 
of  the  first  part  in  the  City  of  Pittsburg »  such  quantities  of 


SIMPLE  CONTRACTS  153 

fruits «  and  other  products  ^  packed  *  by  the »  California  Fruit 
Company  as  may  be  required  by  the  »"  Pittsburg  Produce  Com- 
pany to  meet  the  demands  for  these  products  in  the  Pittsburg 
district. 

That  the  said  "  goods  shall  be  ""  consigned  to  the  "•  Pitts- 
burg Produce  Company  at  the  regular  ^^  (market  quotations) 
as  made  and  published  by  the  party  of  the  first  part,  the  same 
to  be  subject  to  a  Trade  Discount  of  25,  20,  and  10%  off  the 
list  prices,  60  days  net,  or  2%  for  cash,  within  ten  days.  ^^ 

That  the  said  fruit  "  so  consigned  shall  remain  the  property 
of  the"  (California  Fruit  Company)  until  disposed  of  by  the 
party  of  the  second  part,  in  which  case  the  party  of  the  second 
part  becomes  and  is  hereby  agreed  to  be  a  del  credere  selling 
agent  for  the  party  of  the  first  part. 

That  the  party  of  the  second  part  "  agrees  to  sell  the  i**  prod- 
uce consigned  by  the  party  of  the  first  part  to  retail  dealers  and 
to  consumers  that  purchase  in  large  quantities,  "  the  sales  price 
to  be  uniformly  at  20  and  10%  off  the  regular  *«  list. 

That  the  i"  Pittsburg  Packing  Company  shall  "  make  regular  i* 
monthly  accountings  to  the  party  of  the  first  part,'*  that  the 
party  of  the  second  part  shall  insure  and  further  care  for  the 
fruit  *"  consigned  with  all  reasonable  and  due  care  required  by 
the  21  goods  thus  consigned. 

And  it  is  **  agreed  "  that  the  party  of  the  second  part  shall 
execute  in  behalf  of  the  party  of  the  first  part  an  indemnity  *♦ 
bond  "  conditioned  on  the  *«  discharge  of  the  obligations  incum- 
bent upon  him,  the  principal  sum  and  atnount  of  which  is  to  be- 
come due  and  payable  to  the  party  of  the  first  part  "  on  a  failure 
or  breach  of  the  conditions  thereof.  And  it  is  further  **  agreed  *» 
that  this  »»  agreement  may  be  terminated  by  mutual  assent  or  ^'■ 
on  notice  given  "  and  a  proper  accounting. 

In  Witness  Whereof,  We  have  hereunto  affixed  our  "  seals 
this  the  day  and  year  first  above  written. 

(Seal) 

Witnessed  by  " 
(Seal) 


154  APPLIED  BUSINESS  LAW 

Notes  and  Directions:  Rewrite  the  above  form  of  contract 
making  the  changes  as  indicated  by  the  numbered  notes. 

(1)  Insert  "and  signed  in  dupUcate,  this  the  tenth  day  of 
February,  1919." 

(2)  Insert  "party  of  the  first  part." 

(3)  Insert  "party  of  the  second  part." 

(4)  Insert  "in  consideration  of  the  agreement  made  by  the 
party  of  the  second  part  as  hereinafter  stated," 

(5)  Add  "and  adjoining  territory." 

(6)  Add  "both  fresh  and  packed." 

(7)  Insert  "manufactured." 

(8)  Add  "and  shipped." 

(9)  Omit  "Cahfornia  Fruit  Company"  and  insert  "party  of 
the  first  part." 

(10)  Omit  "Pittsburg  Produce  Company"  and  insert  "party 
of  the  second  part." 

(11)  Add  "consignments  of." 
(Ua)  Change  to  "billed." 

(12)  Insert  "trade  price  list "  in  place  of  "market  quotations." 
(12a)  Join  paragraphs  three  and  four  by  omitting  "that." 

(13)  Add  "and  other  products." 

(14)  Insert  "in  consideration  of  the  foregoing  agreement  of 
the  party  of  the  first  part." 

(14a)  Change  to  "various  products." 

(15)  Insert  "equal  to  the  quantities  usually  required  by  retail 
dealers." 

(16)  Insert  "trade  price." 

(17)  Add  "in  consideration  of  the  foregoing." 

(18)  Change  "monthly"  to  "weekly." 

(19)  Insert  "and  remit  any  balance  due  the  latter." 

(20)  Insert  "and  other  products." 

(21)  Add  "character  of  the." 

(22)  Add  "further." 

(23)  Insert  "by  and  between  the  parties  hereto." 

(24)  Add  "and  fidelity." 

(25)  Add  "for  $10,000." 

(26)  Add  "faithful." 


SIMPLE  CONTRACTS  155 

(27)  Insert  "immediately." 

(28)  Add  "provided  and." 

(29)  Insert  "by  and  between  the  parties  hereto." 

(30)  Change  "agreement"  to  "contract." 

(31)  Insert  "sixty  days." 

(32)  Add  "in  writing." 

(33)  Add  "between  the  parties  hereto." 

(34)  Insert  "signatures"  and  omit  "seals." 

(35)  Omit  the  "seal"  and  scroll. 

Directions:  After  the  above  contract  has  been  rewritten 
with  the  various  corrections  and  additions  suggested,  you  should 
make  a  careful  study  of  each  paragraph  and  each  sentence  in  each 
paragraph  with  a  view  to  further  improvement. 

Brevity  and  simpUcity  with  a  view  to  clear  and  exact  state- 
ment of  the  undertaking  and  duty  of  each  party  to  the  contract 
should  be  the  goal. 

After  this  work  has  been  approved,  you  may  mark  it  "Exer- 
cise XII,"  and  file  with  your  other  forms. 


QUESTIONS  FOR  REVIEW 

201.  Of  what  does  Group  I  treat?    Distinguish  between  the  two 

classes  of  contracts. 

202.  Discuss  oral  and  written  contracts,  and  their  relation  to  the 

statute  of  frauds. 

203.  Discuss  the  origins  of  agreements  in  the  matter  of  busi- 

ness contracts. 

203.  State  clearly  and  concisely  all  the  essentials  of  a  valid  con- 
tract. 

205.  Name  and  explain  the  purpose  of  each  of  the  parts  in  a 
well  written  contract. 

208.  Explain  the  purpose  and  method  of  "briefing"  or  "indors- 

ing" business  papers. 

209.  Discuss  "signature  by  agent,"  and  give  examples  to  il- 

lustrate. 


156  APPLIED  BUSINESS  LAW 

EXERCISE  XIII.  Write  a  brief  contract  for  the  sale  of  a 
stock  of  groceries,'  valued  at  $5000. 

EXERCISE  XVI.  Write  a  brief  contract  for  the  sale  of  a  stock 
of  clothing,  value,  $10,000. 


GROUP  n 

ARTICLES  OF  AGREEMENT 

Articles  of  Co-partnership 

220.  Kinds  of  Co-partnership.  The  kinds  of  partner- 
ships are  as  numerous  as  the  varied  interests  of  man- 
kind. The  principal  kinds  may  be  grouped  under  three 
general  divisions:  (1)  Industrial  partnerships,  which  in- 
clude every  form  of  industrial  activity,  as  agriculture, 
mining,  lumbering,  fishing,  manufacturing,  transporting, 
and  the  Uke.  (2)  Commercial  or  trading  partnerships 
of  every  kind,  including  wholesaling  and  retailing,  as 
owners  or  as  factors  or  agents  for  others.  (3)  Professional 
partnerships,  which  include  partnerships  for  carrying  on 
or  practicing  the  various  learned  professions,  as  law 
partnerships,  engineering  partnerships,  and  the  associa- 
tion of  physicians,  surgeons,  and  other  skilled  and  tech- 
nically trained  persons  in  the  practice  of  their  voca- 
tions. 

Of  the  various  kinds  of  partnerships  with  which  one 
may  come  into  contact,  three  of  the  most  common  types 
have  been  selected  for  the  purpose  of  drafting  articles  of 
agreement  for  their  conduct.  These  three  are  typical  of 
partnerships  in  general  and  the  forms  may  readily  be 
varied,  to  suit  any  special  form  desired.  They  will  be  con- 
sidered in  the  following  order:  (1)  A  farm  partnership; 
(2)  a  grocery  partnership;  and  (3)  a  law  partnership. 

167 


158  APPLIED  BUSINESS  LAW 

'      EXERCISE  XV 

221.  Material  facts.  Albert  Brown,  Havana,  Florida, 
is  the  owner  of  160  acres  of  farm  land,  but  without  funds 
or  equipment  to  engage  in  the  sort  of  farming  he  wishes  to 
carry  on.  Charles  Dean,  Macon,  Georgia,  has  been  a 
tenant  farmer  for  a  time  and  is  the  owner  of  teams,  farm 
implements,  and  equipment  ample  to  cultivate  160  acres. 
In  a  letter  to  Dean,  February  14th,  Brown  offers  to  form 
a  partnership  with  him  for  the  purpose  of  canying  on  a 
general  farming  enterprise,  each  to  have  his  property 
valued  by  appraisers  and  then  to  be  taken  over  by  the 
partnership  as  the  capital  invested  by  each  partner,  to- 
gether with  the  time,  labor,  and  skill  of  each  in  behalf  of 
the  partnership;  the  losses  and  gains,  after  each  partner 
receives  $100  a  month  as  salary  which  is  to  be  considered 
as  a  part  of  the  running  expenses  of  the  enterprise,  to  be 
shared  in  proportion  to  their  investments.  Dean  replies 
to  this,  February  15th,  accepting  the  offer  but  with  the 
suggestion  that  the  term  of  the  partnership  be  limited  to 
five  years,  unless  sooner  lawfully  dissolved,  the  dissolution 
to  be  by  competitive  bid,  that  is,  the  privilege  of  continu- 
ing the  enterprise  to  go  to  the  highest  bidder.  To  this  sug- 
gestion Brown  assented,  by  letter  of  February  17th,  1919. 

Each  party  then  made  out  a  schedule  of  the  property 
he  wished  to  invest  in  the  partnership.  Brown's  schedule 
listed,  "One  hundred  sixty  acres  of  farm  land,  being  the 
S.  E.  }4  of  section  32,  Tp.  3  North,  Range  2,  West, 
Tallahassee  Meridian,  valued  at  $62.50  an  acre,  to- 
gether with  the  buildings,  fences,  timber,  orchards,  pe- 
can trees,  and  other  improvements  thereon,  total  valua- 
tion as  appraised,  $10,000." 


ARTICLES  OF  AGREEMENT  159 

Dean's  schedule  listed  the  following  items,  "Two  heavy 
teams,  four  horses,  $1000;  one  span  light  driving  horses 
with  harness  and  market  wagon,  $500;  plows,  drills,  reap- 
ers, and  general  farm  machinery,  $1500;  mill  and  evap- 
orators for  sugar  cane,  $1000;  dairy  cows  and  live  stock, 
$3000;  grain,  feed,  and  supplies,  $1500;  motor  truck,  for 
hauling  to  market,  $1500;  total  valuation,  $10,000." 

These  schedules  were  audited,  the  properties  inspected, 
and  the  valuations  approved  by  the  committee  of  apprai- 
sers. The  parties  then  agreed  to  have  the  terms  of  their  con- 
tract written  out  in  the  form  of  articles  of  copartnership. 

Analysis:  (1)  Name  the  parties  to  the  adventure.  Where  is 
the  contract  to  be  carried  out?  The  laws  of  what  state  will 
govern  in  the  interpretation  of  this  contract?  (2)  Was  there  an 
offer?  By  whom?  To  whom  made?  (3)  Was  the  offer  ac- 
cepted? Is  the  acceptance  qualified,  that  is,  does  it  vary  the 
terms  of  the  offer?  What  is  the  effect  of  an  acceptance  that 
varies  the  terms  of  the  offer?  (5)  Do  the  facts  show  a  mutual 
agreement?  (6)  Is  the  object  of  the  adventure  legal?  (7)  State 
the  consideration.  Can  there  be  a  valid  contract  without  a  con- 
sideration? (8)  Is  the  contract  to  be  performed  within  one 
year?  Must  it  be  in  writing?  (9)  Does  the  contract  involve 
any  interest  in  or  title  to  real  property?  Must  it  be  in 
writing? 

Directions  for  Writing:  The  articles  of  copartnership 
should  be  written  and  signed  in  dupUcate.  They  may  be  written 
in  the  customary  form  of  ordinary  contracts  with  the  various  es- 
sential parts,  but  with  such  additional  paragraphs  as  the  special 
provisions  and  restrictions  may  require. 

The  form  may  be  somewhat  as  follows: 

ARTICLES  OF  COPARTNERSHIP 

This  Aqreement,  Made  and  signed  in  duplicate  the  17th  day 
of  February,  1919,  between  Albert  Brown,  of  Havana,  Flor- 


160  APPLIED  BUSINESS  LAW 

ida,  of  the  first  part,  and  Charles  Dean,  of  Macon,  Georgia, 
of  the  second  part,  Witnesseth  as  Follows: 

FmsT,  That  the  said  parties  above  named  have  agreed  to  be- 
come partners  in  the  business  of  farming,  and  by  this  contract  do 
agree  to  be  partners  together  under  the  firm  name  of  Brown 
&  Dean,  at  and  in  the  County  of  Gadsden,  and  State  of  Florida, 
on  the  S.  E.  ^i  of  Section  32,  Tp.  3  North,  Range  2  West,  in  the 
said  State,  and  on  such  other  land  or  lands  as  may  be  acquired 
from  time  to  time  by  the  said  firm  for  partnership  purposes  in 
the  business  of  general  or  special  farming.  The  said  partnership 
is  to  Begin  on  the  first  day  of  March,  1919,  and  continue  for  a 
period  of  Five  Years,  to  February  29,  1924,  unless  sooner  dis- 
solved by  mutual  consent,  or  terminated  by  the  death  or  disabil- 
ity of  one  of  the  parties  hereto  or  the  bankruptcy  of  the  partner- 
ship. 

Second,  To  this  end  and  for  this  purpose,  the  party  of  the  first 
part  has  contributed  his  farm  of  160  acres,  together  with  all  the 
buildings  and  other  improvements  thereon,  being  the  S.  E.  ^ 
of  Section  32,  Tp.  3  North,  Range  2  West,  in  Gadsden  County, 
Florida,  as  his  share  of  the  partnership  capital,  being  valued  at 
$10,000  and  accepted  at  such  valuation  by  the  parties  hereto; 
•and  the  party  of  the  second  part  has  contributed  all  his  certain 
teams,  farm  implements,  and  farm  equipment,  dairy  cows,  motor 
truck,  the  itemized  schedule  of  which  is  hereto  appended  and 
made  a  part  of  this  contract,  all  of  which  said  stock  and  equip- 
ment are  estimated  and  valued  at  $10,000  and  accepted  at  such 
valuation  by  the  parties  hereto;  the  said  property  both  real  and 
personal  being  the  shares  contributed  to  the  partnership  capital 
by  the  parties  to  this  agreement,  the  same  to  constitute  the  capi- 
tal stock  and  equipment  of  the  above  named  partnership  to  be 
used  and  employed  in  common  by  and  between  the  partners  for 
the  purpose,  promotion,  and  conduct  of  the  farming  business 
undertaken  by  the  parties  hereto  and  for  their  joint  and  mutual 
benefit. 

Third,  And  the  parties  hereto  further  agree  that  at  all  times 


ARTICLES  OF  AGREEMENT  161 

during  the  continuance  of  their  said  partnership  they  and  each 
of  them  will  give  his  full  time  and  attention,  or  as  nearly  thereto 
as  may  reasonably  be  required,  to  said  business  and  occupation 
of  farming,  and  exert  themselves  for  their  joint  interest,  benefit, 
and  profit,  and  to  employ  their  skill  and  knowledge  and  under- 
standing of  the  science  of  agriculture  and  general  farming  to  that 
end. 

Fourth,  That  each  member  of  the  firm  shall  receive  from  the 
partnership  funds  available  therefor,  the  sum  of  $100  a  month 
as  wages,  which  is  to  be  considered  as  a  part  of  the  run- 
ning expenses  of  the  business;  and  all  rents,  charges,  ex- 
penses and  losses  that  may  arise  from  the  conduct  of  the  busi- 
ness as  well  as  all  gains  and  profits  of  any  and  every  sort  that 
shall  come  from  or  arise  out  of  the  said  farming  business,  either 
directly  or  indirectly,  shall  be  divided  and  shared  ratably  be- 
tween them  in  proportion  to  the  respective  amounts  invested 
by  each  partner,  the  accounting  and  adjustment  to  be  made  at 
least  once  a  year,  preferably  on  the  first  day  of  March  of  each 
year  during  the  continuance  of  this  partnership. 

Fifth,  That  accurate  and  complete  books  of  account  and 
record  of  the  said  business  shall  be  kept  by  double-entry  of  all 
money  or  property  transactions  of  the  said  partnership,  and  each 
partner  shall  at  all  times  have  access  to  such  books.  At  the  ex- 
piration of  the  agreed  term  of  five  years,  or  sooner  termination, 
of  the  partnership  the  said  partners,  each  to  the  other,  shall  and 
truly  make  a  just  and  final  accounting  of  all  things  relat- 
ing to  their  said  business,  and  in  all  things  truly  adjust  the 
same,  and  to  this  end  the  final  dissolution  of  the  partnership 
shall  be  by  competitive  bid  for  the  property,  equipment,  and 
good  will  of  the  partnership,  and  the  privilege  of  continuing  the 
business  to  go  to  the  highest  bidder. 

In  Witness  Whereof,  The  above  named  parties  have  hereto 
set  their  hands  and  seals  the  day  and  year  first  above  written. 

Witnessed  by  (Seal) 

(Seal) 


162  APPLIED  BUSINESS  LAW 

Further  Directions:  Study  each  paragraph  of  the  above 
form  with  a  view  to  greater  brevity.  Rewrite  each  paragraph 
separately,  looking  carefully  to  clearness  and  exactness  of  ex- 
pression. See  that  no  essential  is  omitted.  After  each  para- 
graph is  worked  over,  rewrite  the  whole  form  of  agreement  and 
submit  for  approval. 

These  articles  of  copartnership  should  be  written  in  duplicate 
and  the  work  should  be  done  with  great  care  and  neatness.  Do 
not  submit  poor  work;  it  should  not  be  approved.  Hold  your 
work  to  the  highest  possible  standard. 

After  your  work  has  been  approved,  mark  it  "Exercise  XV/' 
and  file. 


EXERCISE  XVI 

222.  Material  facts.  Eli  Ford,  of  Denver,  Colorado, 
wishes  to  go  into  the  grocery  business,  and  for  this  pur- 
pose he  offers  to  form  a  partnership  with  George  Howe, 
of  the  same  city.  The  terms  of  the  offer  are  that  each 
partner  is  to  invest  cash  to  the  amount  of  $5000,  and  the 
business  to  continue  for  a  period  of  five  years,  unless  sooner 
lawfully  dissolved.  The  location  of  the  business  is  to  be 
at  such  place  or  places  as  may  be  mutually  agreed  upon 
by  the  parties.    Howe  accepts  the  offer,  February  15, 1919. 

Analysis:  Name  the  parties  to  the  negotiation.  Is  there  an 
offer?  By  whom  made?  Has  it  been  accepted?  What  is  the 
consideration  involved?  Is  the  purpose  of  the  undertaking  law- 
ful? Is  the  undertaking  to  be  performed  within  a  year?  Must 
it  be  in  writing? 

Directions:  Make  a  careful  study  of  the  following  form  of 
agreement  and  where  possible  state  the  provisions  of  the  con- 
tract with  greater  clearness  and  brevity.  With  these  points  in 
mind,  rearrange  the  paragraphs  and  write  the  agreement  in 
duplicate, 


ARTICLES  OF  AGREEMENT  16S 


ARTICLES  OF  COPARTNERSHIP 

This  Agreement,  Made  in  duplicate  the  15th  day  of  Feb- 
ruary, 1919,  by  and  between  Eli  Ford,  of  Denver,  Colorado,  of 
the  first  part,  and  George  Howe,  of  the  same  city,  of  the  second 
part,  WITNESSETH: 

First,  That  the  said  parties  above  named  have  agreed  to  be- 
come partners  in  a  trading  business,  and  by  this  contract  do  agree 
to  be  partners  together  under  and  by  the  firm  name  of  Ford  & 
Howe,  in  the  City  of  Denver,  Colorado,  to  engage  in  the  re- 
tail grocery  business,  buying  and  selling  all  sorts  of  groceries  and 
produce  which  may  reasonably  be  handled  in  such  business.  The 
said  partnership  to  Begin  on  the  first  day  of  March,  1919,  and 
to  continue  for  a  period  of  Five  Years,  to  February  29, 1924, 
unless  sooner  dissolved  by  mutual  consent,  or  terminated  by  the 
death  or  disability  of  one  of  the  partners  hereto,  or  by  the  bank- 
ruptcy of  the  partnership. 

Second,  That  to  this  end  and  for  this  purpose  the  party  of  the 
first  part  has  contributed  five  thousand  dollars  ($5000.00)  in 
cash,  and  the  party  of  the  second  part  has  contributed  a  like  sum, 
five  thousand  dollars  ($5000.00)  in  cash,  and  the  capital  stock  so 
formed  is  to  be  used  and  employed  in  common  between  them  as 
partners  for  the  support  and  management  of  the  said  grocery 
business,  to  their  mutual  benefit  and  advantage. 

Third,  That  the  parties  hereto  further  agree  that  at  all  times 
during  the  continuance  of  their  said  partnership  they  and  each 
of  them  shall  and  will  give  his  full  time  and  attention,  or 
as  nearly  thereto  as  may  reasonably  be  required,  to  said  busi- 
ness and  exert  themselves  for  their  joint  interest,  profit,  and 
benefit,  and  to  employ  their  skill  and  experience  in  trading  to  that 
end. 

Fourth,  That  it  is  further  agreed  that  each  member  of  the  firm 
shall  receive  from  the  partnership  funds  available  therefor,  the 
sum  of  two  hundred  dollars  ($200.00)  a  month  as  wages  which  is 
to  be  considered  as  a  part  of  the  operating  expenses  of  the  busi- 


164  APPLIED  BUSINESS  LAW 

ness;  and  all  rents,  charges,  expenses,  and  losses,  that  may  arise 
from  the  conduct  of  the  business  as  well  as  all  gains  and  profits 
of  any  and  every  sort  that  shall  come  from  or  arise  out  of  the  said 
grocery  business,  either  directly  or  indirectly,  shall  be  divided 
and  shared  equally  between  them,  such  sharing  and  apportion- 
ment to  be  not  less  frequent  than  once  annually,  preferably  on  the 
first  day  of  March,  during  the  continuance  of  this  partnership. 

Fifth,  That  accurate  and  complete  books  of  account  and  rec- 
ords of  the  business  shall  be  kept  by  double  entry  of  all  money 
or  property  transactions  of  the  said  partnership,  and  each  partner 
shall  at  all  times  have  access  to  such  books.  At  the  expiration  of 
the  agreed  term  of  five  years,  or  sooner  termination  of  the  part- 
nership, the  partners,  each  to  the  other,  shall  and  will  make  a 
true,  just  and  final  accounting  of  all  things  relating  to  the  said 
partnership  business,  and  in  all  things  truly  adjust  the  same. 

In  Witness  Whereof  The  above  named  parties  have  hereto 
set  their  hands  and  seals  the  day  and  year  first  above  written. 

Witnessed  by  (Seal) 

(Seal) 

Further  Directions.  Reread  and  check  over  your  work  to 
see  that  no  essential  element  or  provision  of  the  agreement  has 
been  omitted. 

Note  carefully  the  order  of  arrangement  of  words,  sentences, 
and  paragraphs.  Clearness  and  conciseness  of  statement  are  the 
qualities  you  should  cultivate  in  your  work. 

After  your  work  has  been  approved,  mark  it  "Exercise  XVI," 
and  file. 

EXERCISE  XVII 

223.  Material  facts.  James  Knox,  of  Madison, 
Wisconsin,  advertises  for  a  law  partner  to  engage  in 
the  general  law  practice  in  Seattle,  Washington.  Levi 
Miller,  of  Albany,  New  York,  writes  on  February  1,  1916, 
inquiring  the  terms  and  requirements,  and  stating  his 


ARTICLES  OF  AGREEMENT  165 

experience  and  qualifications  as  a  lawyer.  He  indicates 
his  willingness  to  engage  in  the  practice  in  Seattle  under 
suitable  conditions. 

Knox  replies  on  February  5th  that  he  wishes  to  have 
an  experienced  lawyer  for  a  partner  and  one  who  can  in- 
vest at  least  $5000  cash  as  a  working  capital  to  offset  the 
law  books,  desks,  and  office  equipment  that  he  proposes 
to  put  into  the  partnership  business.  He  indicates  his 
wilUngness  to  make  a  contract  on  these  conditions,  the 
term  of  partnership  to  extend  over  a  period  of  seven  years, 
and  if  mutually  agreeable  to  be  renewed  indefinitely;  the 
income  and  gains  from  the  practice  to  be  shared  equally 
between  the  partners.  Miller  accepts  this  offer  February 
15th,  1916. 

Analysis:  Point  out  five  of  the  essential  elements  of  a  valid 
contract  in  this  agreement.  Is  it  necessary  that  the  agreement 
be  in  writing  to  render  it  enforceable?  In  what  state  is  the  con- 
tract to  be  carried  out?  What  law  will  govern  in  its  interpre- 
tation? 

Directions:  Make  a  careful  study  of  the  following  form  and 
where  possible,  state  the  provisions  of  the  contract  with  greater 
brevity  and  clearness.  Omit  all  unnecessary  repetitions,  and 
try  to  avoid  the  tendency  to  use  a  stilted  legal  style  in  your 
writing. 

ARTICLES  OF  AGREEMENT 

Tms  Contract,  Written  and  signed  in  duplicate  the  17th  day 
of  February,  1916,  made  and  entered  into  by  and  between 
James  Knox,  Madison,  Wisconsin,  of  the  first  part,  and  Levi 
Miller,  Albany,  New  York,  of  the  second  part,  Witnesseth  as 
Follows: 

First,  That  the  said  parties  above  named  have  agreed  to  be- 
come partners  in  the  practice  of  law  and  in  legal  business,  and 


166  APPLIED  BUSINESS  LAW 

by  this  contract  do  agree  to  be  partners  together  under  and  by 
the  firm  name  of  Knox  &  Miller,  at  and  in  offices  to  be  selected 
and  agreed  upon  later,  in  the  City  of  Seattle,  County  of  King, 
and  State  of  Washington,  in  the  business  and  profession  of  at- 
torneys and  counselors  at  law.  The  said  partnership  is  to  Begin 
on  the  first  day  of  March,  1916,  and  to  continue  for  a  period  of 
seven  years,  to  February  28,  1923,  unless  sooner  dissolved  by 
mutual  consent,  or  terminated  by  the  death  or  disability  of  one 
of  the  partners  hereto. 

Second,  That  to  this  end  and  for  this  purpose  the  said  party 
of  the  second  part  has  contributed  the  sum  of  five  thousand  dol- 
lars ($5000.00)  in  cash,  and  the  said  party  of  the  first  part  has 
contributed  all  his  certain  law  library,  containing  one  thousand 
volumes,  the  titles  and  descriptions  of  which  are  hereto  appended 
as  "Annex  A,"  and  together  with  the  said  library  he  has  contrib- 
uted all  such  book-cases,  office  desks,  chairs,  filing-cabinets,  and 
office  furniture  and  fixtures  that  are  now  located  in  his  offices  at 
Rooms  958-960  at  the  Eli  Building,  in  the  City  of  Madison,  Wis- 
consin, abovfe  mentioned,  a  Ust  and  description  of  the  said  furni- 
ture and  equipment  being  appended  hereto  as  "Annex  B,"  all 
of  which  library  and  fi)(tures  are  estimated  and  valued  by  the 
parties  hereto  at  the  sum  of  five  thousand  dollars  ($5000.00); 
these  contributions  to  constitute  the  capital  stock  and  equip- 
ment of  the  firm  to  be  used  and  employed  in  common  between 
them,  for  the  support,  promotion,  and  conduct  of  the  said  law 
business,  in  the  City  of  Seattle,  Washington,  to  and  for  their 
mutual  benefit. 

Third,  That  at  all  times  during  the  continuance  of  their  said 
partnership  they  and  each  of  them  will  give  their  time  and  at- 
tention to  said  business  and  profession,  and  to  exert  them- 
selves for  their  joint  interest,  benefit,  and  profit,  and  to  employ 
their  skill  and  knowledge  and  understanding  of  the  law  in  the 
trial  of  causes  and  the  care  of  all  such  legal  business  entrusted 
to  them. 

Fourth,  That  they  shall  and  will  at  all  times  during  the  said 
partnership  bear,  pay,  and  discharge  equally  between  them  all 


ARTICLES  OF  AGREEMENT  16^ 

rents,  charges,  and  expenses  that  may  be  required  for  the  main- 
tenance of  offices  and  the  conduct  of  said  business,  and  that  all 
gains,  profits,  fees,  retainers,  and  compensations  of  any  and  every 
kind  and  sort  that  shall  come  from  or  arise  out  of  their  said  busi- 
ness, either  directly  or  indirectly,  shall  be  divided,  and  shared 
equally  between  them  on  the  first  day  of  March,  June,  September, 
and  December,  of  each  and  every  year  during  the  continuance 
of  this  partnership. 

Fifth,  That  accurate  and  complete  records  and  books  of  ac- 
count of  said  business  shall  be  kept  by  double-entry  of  all  money 
transactions  of  said  firm,  and  each  partner  shall  at  all  times  have 
access  to  these  books  and  records.  At  the  expiration  of  the  agreed 
term,  or  sooner  termination,  of  the  partnership  the  said  partners, 
each  to  the  other,  shall  and  will  make  a  true,  just  and  final  ac- 
count of  all  things  relating  to  their  said  business,  and  in  all 
things  truly  adjust  the  same. 

In  Witness  Whereof,  The  above  named  parties  have  hereto 
set  their  hands  and  seals  the  day  and  year  first  above  written. 

Witnessed  by  (Seal) 

(Seal) 

Further  Directions:  Reread  and  check  your  work  to  dis- 
cover possible  errors  and  omissions.  See  that  every  essential 
element  is  present. 

With  a  view  to  clearness,  brevity,  and  completeness  of  state- 
ment, rewrite  the  above  form  of  agreement  in  duplicate. 

After  your  work  has  been  approved,  mark  it  "Exercise  XVII," 
and  file. 

2.  Articles  of  Incorporation 

224.  Agreement  to  incorporate.  Articles  of  associa- 
tion represent  the  written  agreement  between  the  parties 
who  enter  into  a  contract  to  organize  a  corporation.  These 
articles  of  association  are  required  by  statute  to  set  out 


168  APPLIED  BUSINESS  LAW 

certain  information  concerning  the  parties,  the  capital 
stock,  and  the  proposed  business  to  be  undertaken. 

These  essentials  are  usually  required  in  the  following 
order:  (1)  Corporate  name,  (2)  purpose  for  which  formed, 
(3)  capital  stock,  (4)  shares  of  stock,  (5)  location  of 
principal  office,  (6)  period  of  duration,  (7)  number  of  its 
directors,  and  (8)  names  and  addresses  of  the  subscribers 
of  the  articles  of  association,  with  the  number  of  shares 
of  stock  which  each  agrees  to  take. 

EXERCISE  XVIII 

225.  Material  facts.  Asa  Albers,  of  Amador,  Cali- 
fornia, has  discovered  upon  his  own  and  adjoining  lands 
what  he  believes  to  be  a  valuable  vein  of  coal.  Not  being 
able  to  develop  it  on  a  commercial  scale,  he  promotes  the 
organization  of  a  company  for  the  purpose  of  mining  and 
marketing  this  coal.  On  solicitation,  he  gains  the  assent 
of  four  of  his  friends  to  join  him  in  the  enterprise.  His 
plan  is  to  organize  a  corporation  with  a  capital  stock  of  a 
million  dollars,  which  will  take  over  his  160  acres  of  land 
at  $1000  an  acre  for  which  the  corporation  shall  issue  to 
him  1600  shares  of  stock  fully  paid,  and  that  he  further 
subscribe  for  400  shares  at  $100  par  value;  that  the  prin- 
cipal business  of  the  corporation  shall  be  the  mining  of 
coal  for  sale  to  the  market  generally,  and  for  manufac- 
turing coke  and  illuminating  gas  and  other  by-products 
arising  from  such  manufacture;  that  the  principal  place  of 
business  of  the  company  shall  be  Amador,  California,  with 
the  principal  office  located  at  San  Francisco.  The  parties 
agree  to  incorporate  under  the  laws  of  California  and  to 


ARTICLES  OF  AGREEMENT  16d 

take  and  pay  for  at  the  par  value  of  $100  a  share  the  num- 
ber of  shares  set  opposite  their  respective  names. 

The  subscribers  are:  Asa  Albers,  Amador,  California,  2000 
shares;  B.  H.  Eaton,  Eaton,  Colorado,  1000  shares;  Cecil  Hay, 
Calaveras,  Cahfornia,  2000  shares;  Edward  Day,  Detroit,  Mich- 
igan, 2000  shares;  and  Eric  Cooper,  Eureka,  Cahfornia,  1000 
shares. 

With  these  subscriptions,  Albers  has  Articles  of  Association 
drafted  ready  for  the  signatures  of  the  proposed  incorporators 
of  the  company. 

Analysis:  (1)  Who  are  the  parties  to  the  agreement?  What 
is  the  agreement?  (2)  The  laws  of  what  state  will  govern  in  the 
organization  of  the  company?  (3)  Is  there  an  offer?  An  ac- 
ceptance? To  whom  is  the  offer  made?  By  whom?  By  whom 
accepted?  (4)  Is  there  mutual  agreement  between  the  parties? 
(5)  Is  there  a  consideration?  (6)  Is  the  object  of  the  under- 
taking lawful?  (7)  Must  the  agreement  be  in  writing?  Is  it  to 
be  performed  within  a  year?  (8)  Is  the  agreement  to  organize 
merely  between  the  parties  incorporating,  or  is  it  between  them 
as  one  party  and  the  State  as  the  other  party  to  the  contract? 
Is  there  an  initial  agreement  among  the  parties  before  the  final 
contract  between  them  and  the  State?  (9)  What  is  the  nature 
of  the  agreement  in  each  case?  (10)  What  is  the  consideration 
in  each  case?  (11)  What  would  be  the  effect  of  a  breach  of  the 
agreement  in  either  case?  (12)  What  is  the  obhgation  on  the 
part  of  the  State? 

Directions:  The  Articles  of  Association  should  conform  with 
the  requirements  of  the  state  law.  They  should  be  written  in 
triplicate  and  should  state  the  various  requirements  called  for  in 
the  statute.  They  should  be  as  brief  as  possible  to  afford  clear- 
ness and  state  the  purpose  of  the  corporation  fully,  since  the 
future  operations  of  the  corporation  will  be  hmited  by  the  pro- 
visions recited  in  the  articles  of  incorporation.  These  Articles 
of  Association  will  later  be  certified  by  the  Secretary  of  State 
and  they  then  become  the  "Articles  of  Incorporation,"  or  "char- 
ter" of  the  corporation. 


170  APPLIED  BUSINESS  LAW 

Make  a  carefuLstudy  of  the  following  form  of  articles  of  as- 
sociation, and  where  possible,  state  the  provisions  of  the  agree- 
ment with  greater  brevity  and  clearness.  Rewrite  each  para- 
graph with  this  purpose  in  mind. 

ARTICES  OF  INCORPORATION 

Know  All  Men  by  These  Presents,  That  we,  Asa  Albers,  of 
Amador,  California;  B.  H.  Eaton,  of  Eaton,  Colorado;  Cecil 
Hay,  Calaveras,  California;  Edward  Day,  of  Detroit,  Michigan; 
and  Eric  Cooper,  of  Eureka,  California,  each  a  citizen  of  the 
United  States  of  America,  and  a  resident  of  the  State  named, 
have  associated  ourselves  together  as  a. .  .Company. .  .under 
the  name  and  style  of . . .  The  California  Coal  Company  . . . 
for  the  purpose  of  becoming  a  body  corporate  and  politic  under 
and  by  virtue  of  the  laws  of  the  State  of  CaUfornia  and  in  ac- 
cordance with  the  provisions  of  the  said  laws  of  said  State,  we  do 
hereby  make,  execute  and  acknowledge  in . . .  TripUcate . . .  this 
certificate  in  writing  of  our  intention  so  to  become  a  body  cor- 
porate, under  and  by  virtue  of  the  said  laws: 

First,  the  corporate  name  and  style  of  our  said  Company  shall 
be. .  .The  California  Coal  Company.  . . 

Second,  the  object  for  which  our  said  Company  is  formed  and 
incorporated  is  for  the  purpose  of  acquiring,  holding,  owning, 
working,  and  developing,  mineral  lands  and  mineral  bearing 
veins,  ledges,  lodes,  and  other  formations  for  the  production  of 
coal  and  the  manufacture  of  coke  and  for  the  use  and  sale  of  the 
products  thereof,  of  every  kind  whatsoever;  and  to  construct, 
own,  and  operate  all  necessary  equipment,  buildings,  and  ap- 
purtenances  necessary  or  valuable  in  any  way  in  the  develop- 
ment of  such  mining  enterprise. 

Third,  the  capital  stock  of  our  said  Company  is  One  Million 
Dollars,  one-fifth  of  which  amount  is  set  apart  as  preferred  stock, 
all  of  which  has  been  subscribed,  together  with  three-fourths 
of  the  total  common  stock,  making  a  total  of  eighty  per  cent  of 


ARTICLES  OF  AGREEMENT  171 

the  entire  capital  stock  subscribed  before  the  filUng  of  this  certifi- 
cate. 

Fourth,  the  capital  stock  of  our  said  Company  is  divided  into 
Ten  Thousand  Shares,  of  the  par  value  of  One  Hundred  Dollars 
for  each  share,  the  same  to  be  fully  paid  and  non-assessable. 

Fifth,  the  operations  of  our  said  Company  shall  be  carried  on 
in  the  Counties  of  Amador,  Butte,  Calaveras,  and  such  other 
counties  of  the  State  of  California  as  may  later  be  designated  by 
the  Board  of  Directors;  and  the  principal  place  of  business  and 
Home  Office  of  the  said  Company  shall  be  located  in  the  city 
and  County  of  San  Francisco,  in  the  State  of  CaUfomia. 

Sixth,  the  affairs  and  management  of  our  said  Company  is  to 
be  under  the  control  of  an  Executive  Board  of  Directors,  and 
Eric  Cooper,  of  Eureka,  California,  Cecil  Hay,  of  Calaveras, 
California,  and  Asa  Albers,  of  Amador,  California,  all  of  the 
State  of  California,  are  hereby  elected  to  act  as  said  Board  of 
Directors,  and  to  manage  the  affairs  and  concerns  of  said  Com- 
pany for  the  first  year  of  its  corporate  existence. 

Seventh,  the  stockholders  shall  have  power  to  make  such  pru- 
dential by-laws  as  they  may  deem  proper  for  the  management  of 
the  affairs  of  this  Company,  according  to  the  statute  in  such 
case  made  and  provided. 

In  Witness  Whereof,  we  have  hereunto  subscribed  our 
names  and  set  our  seals,  this  the  14th  day  of  October,  1918. 

Asa  Albers,  Amador,  California (Seal) 

Subscribed  for  2000  shares  of  stock 

B.  H.  Eaton,  Eaton,  Colorado (Seal) 

Subscribed  for  1000  shares  of  stock 

Cecil  Hay,  Calaveras,  California (Seal) 

Subscribed  for  2000  shares  of  stock 

Edward  Day,  Detroit,  Michigan (Seal) 

Subscribed  for  2000  shares  of  stock 

Eric  Cooper,  Eureka,  California (Seal) 

Subscribed  for  1000  shares  of  stock 


172  APPLIED  BUSINESS  LAW 

ACKNOWLEDGMENT 

State  of  California,      1 
County  and  [  ss. 

City  of  San  Francisco  J 

I,  Martin  L.  Field,  a  Notary  Public,  in  and  for  the  County  and 
State  above  named,  do  hereby  certify  that:  Asa  Albers,  of  Ama- 
dor, CaUfornia;  B.  H.  Eaton,  of  Eaton,  Colorado;  Cecil  Hay,  of 
Calaveras,  California;  Edward  Day,  of  Detroit,  Michigan;  and 
Eric  Cooper,  of  Eureka,  California,  personally  known  to  me  to  be 
the  persons  whose  names  are  subscribed  to  the  foregoing  Articles 
of  Association,  appeared  before  me  in  person,  and  Acknowl- 
edged that  they  each  signed,  sealed,  and  delivered  the  said 
instrument  of  writing  as  his  free  and  voluntary  act,  for  the  uses 
and  purposes  therein  set  forth. 

Given  under  my  hand  and  Notarial  Seal,  this . . .  14th . . .  day  of 
October,  one  thousand  nine  hundred  and  eighteen. 

(Notarial  Seal.)  Martin  L.  Field, 

Notary  Public. 

Further  Directions:  Re-read  and  check  your  work  to  dis- 
cover possible  omissions  and  errors.  See  that  every  essential 
element  is  present.  With  a  view  to  clearness,  brevity,  and  com- 
pleteness of  statement,  write  the  articles  of  association  in  tripli- 
cate. •  Include  the  form  of  acknowledgment  in  each. 

After  your  work  has  been  approved,  mark  it  "  Exercise 
XVIII,"  and  file  with  your  other  papers. 

SUPPLEMENTARY  EXERCISES 

226.  Purpose.  Ability  to  write  business  papers  comes 
from  intelligent  practice  under  wise  guidance.  One  may 
get  this  kind  of  practice,  to  some  extent,  by  serving  a 
period  of  apprenticeship  in  a  business  ofl&ce,  but  usually 
this  course  is  open  to  very  few,  it  gives  inadequate  ex- 
perience except  ?ilong  a  certain  narrgw  Une,  and  it  is  en-* 


AUTICLES  OF  AGREEMENT  m 

tirely  too  slow  to  be  justified  by  the  results  produced.  To 
increase  the  student's  skill  in  writing  business  papers,  the 
following  material  is  suggested  for  further  practice;  or 
better  still,  the  student  should  supply  his  own  facts  and 
then  write  out  the  various  articles  of  agreement  and  of 
association  based  on  these  facts  of  his  own  experience. 

EXERCISE  XIX.  John  Doe,  of  Denver,  offers  to  form  a 
trading  partnership  with  Richard  Roe,  of  Pueblo,  and  John  Dale, 
of  Greeley,  all  in  the  State  of  Colorado,  for  the  purpose  of  engag- 
ing in  the  wholesale  grain  and  produce  business,  with  the  princi- 
pal place  of  business  to  be  in  Denver,  and  with  branches  in 
Greeley,  Grand  Junction,  Rocky  Ford,  and  Pueblo,  all  in  the 
State  of  Colorado.  Roe  and  Dale  each  accepts  the  offer  Feb- 
^  ruary  18,  1919. 

Directions:  You  may  supply  other  essential  details  for  this 
business  and  write  out  articles  of  copartnership  in  triplicate  for 
the  parties. 

EXERCISE  XX.  Olaf  Nelsen,  of  Leadville,  Colorado,  offers 
to  form  a  mining  partnership  with  Peter  Sorensen,  of  Squaw 
Gulch,  Arizona,  for  the  purpose  of  prospecting  and  mining  for 
gold,  silver,  copper,  and  other  metals,  minerals,  and  commercial 
substances.    Sorensen  accepts  the  offer  October  14,  1918, 

Directions:  Supply  essential  details  and  write  out  articles 
of  agreement  for  the  parties  to  this  agreement.  When  your  work 
is  approved,  mark  it  Exercise  XX,  and  file  with  your  other  papers. 

EXERCISE  XXI.  Daniel  Webster  Smith  and  John  Marshall 
Jones,  both  of  Wabash,  Indiana,  after  a  preliminary  negotiation, 
agree  to  form  a  partnership  for  the  purpose  of  practicing  law  and 
carrying  on  legal  business  in  the  City  of  Indianapolis,  Indiana. 

Directions:  Supply  other  essential  details  for  this  part- 
nership and  write  out  articles  of  copartnership  for  the  parties. 
When  your  work  has  been  approved,  mark  it  Exercise  XXI,  and 
file  with  your  other  papers. 

EXERCISE  XXII.  (a)  Change  the  articles  of  agreement  in 


174  APPLIED  BUSINESS  LAW 

Exercise  XIX  to  articles  of  association  for  the  incorporation 
of  the  business. 

(b)  Change  the  articles  of  copartnership  in  Exercise  XX  to 
articles  of  association  for  the  incorporation  of  the  mining  ad- 
venture agreed  upon. 

After  these  papers  have  been  written  out  in  proper  form,  mark 
them  properly  and  file. 


GROUP  III 

NEGOTIABLE    CONTRACTS 

227.  In  general.  Negotiable  contracts  differ  in  char- 
acter from  ordinary  contracts  (see  sec.  72).  They  had 
their  origin  in  the  law  merchant  and  serve  a  different 
purpose  in  the  affairs  of  business.  Their  purpose  was 
not  so  much  to  create  rights  and  impose  obligations  as 
it  was  to  make  clear  the  evidence  of  the  obligation  and 
to  facilitate  the  ready  transfer  of  rights  from  one  holder 
to  another. 

Essentials.  Commercial  paper  to  be  negotiable:  (1)  Must 
contain  an  unconditional  promise  or  order  in  writing;  (2)  must 
be  to  pay  a  sum  certain  in  money;  (3)  must  be  payable  to  order 
or  bearer;  (4)  must  be  payable  at  a  fixed  or  determinable  future 
time  or  on  demand;  (5)  must,  if  it  is  a  bill  of  exchange,  indicate 
the  drawee  with  reasonable  certainty;  (6)  must  be  signed  by  the 
drawer  or  maker;  (7)  must  contain  no  condition  to  do  any  act 
other  than  to  pay  money;  and  (8)  it  must  be  delivered  by  the 
maker  or  drawer  to  render  it  valid. 

Non-essentials.  The  presence  or  absence  of  any  of  the 
following  will  not  affect  the  validity  of  the  instrument,  but  it  is 
customary  that  conmiercial  paper:  (1)  Should  be  dated;  (2) 
should  state  the  time  of  payment,  otherwise  it  is  payable  on 
demand;  (3)  should  state  the  place  where  made  and  where  pay- 
able; (4)  should  recite  a  consideration,  as  "for  value  received"; 
and  (5)  should  not  be  under  seal,  but  this  rule  of  the  conunon 
law  has  been  changed  by  statute  so  that  the  presence  of  a  seal  will 
not  affect  the  negotiability  of  commercial  paper. 

Kinds  of  negotiable  contracts.  As  stated  in  section  73, 
Book  1,  the  principal  kinds  of  negotiable  paper  in  ordinary  use 
are  notes,  checks,  and  drafts.    But  for  convenience  in  studying 

175 


176  APPLIED  BUSINESS  LAW 

the  different  forms,, we  shall  consider  them  in  the  following  order: 

(1)  Promissory  notes,  (2)  certificates  of  deposit,  (3)  negotiable 
bonds,  (4)  checks,  (5)  bank  drafts,  (6)  bills  of  exchange,  (7) 
negotiable  documents  of  title,  as  bills  of  lading  and  warehouse 
receipts. 

228.  Promissory  notes.  What  is  a  promissory  note? 
Is  it  negotiable?  State  six  essential  characteristics  of  a 
negotiable)  promissory  note.  State  three  or  more  non- 
essentials that  usually  may  be  found  in  a  well  written 
promissory  note. 

EXERCISE  XXIII 

229.  Material  facts.  John  Doe  bought  a  cow  of 
Richard  Roe  for  $100  for  which  it  was  agreed  that  he 
should  give  his  promissory  note  payable  six  months  after 
date,  February  21,  1919,  to  the  order  of  Richard  Roe  at 
The  Stanford  National  Bank  of  Palo  Alto,  California,  with 
interest  at  six  per  cent  per  annum. 

Analysis:  (1)  Are  all  the  elements  of  an  agreement  present? 

(2)  What  sort  of  contract  is  the  undertaking  of  John  Doe?  (3) 
Is  there  an  offer?  An  acceptance?  (4)  Is  there  a  consideration? 
(5)  Do  the  facts  indicate  the  presence  of  all  the  essential  ele- 
ments of  a  negotiable  contract?  Do  they  include  any  non-es- 
sentials? 

Directions:  Scrutinize  the  facts  carefully  and  then  group 
them  in  the  form  of  a  negotiable  promissory  note.  Examine  the 
followiDg  form  to  see  if  it  contains  all  the  above  facts. 

PROMISSORY  NOTE 

$100.00  Palo  Alto,  Cal.,  Feb.  21,  1919. 

Six  months  after  date  I  promise  to  pay  to  the  order  of 

Richard  Roe One  Hundred Dollars.  N^o- 


NEGOTIABLE  CONTRACTS  177 

liable  and  payable  at  "The  Stanford  National  Bank  of  Palo 

Alto Payable  with  interest  at  6%  from 

date,  for  value  received. 

John  Doe. 
No.  XXIV. . . 
Due  August  21,  1919... 

Further  Directions:  Make  a  copy  of  the  above  form  of 
negotiable  promissory  note.  Observe  the  arrangement,  and  with 
a  view  to  greater  brevity  and  simphcity  of  form,  rewrite  the 
note. 

Further  Analysis:  Name  the  parties  to  the  note.  Who  is 
the  maker?  Who  the  holder?  Who  is  the  payee?  Does  the 
paper  name-  a  "drawee"?  Does  it  contain  the  name  of  a 
"drawer"?  Who  is  the  person  that  promises  to  pay?  What  is 
he  called?  Who  is  the  person  to  receive  payment?  What  is  he 
called?  How  many  parties  to  this  paper  at  present?  May  there 
be  other  parties  to  a  promissory  note?  Who?  Who  is  an  in- 
dorser?    A  holder  for  value? 

Since  the  law  does  not  require  a  promissory  note  to  be  in  any 
particular  form,  arrangement,  or  wording,  the  above  note  may 
be  expressed  in  a  number  of  ways.  You  may  arrange  the  material 
in  different  forms,  but  always  with  the  essentials  of  a  valid  nego- 
tiable promissory  note  present.  Examine  the  following  ar- 
rangement: 

"I  promise  to  pay  to Richard  Roe or  order, 

One  Hundred  Dollars,  on  the  21st  day  of  August,  1919,  with 
interest  at  six  per  cent,  for  value  received 

(Signed)  John  Doe  . . 

Caution:  "In  no  case  should  the  student  sign  the  name  of 
another  unless  he  has  authority  to  do  so."  Where  a  name  is 
known  to  be  fictitious,  the  student  may  write  it  in  (see  sec.  209- 
5,  p.  135),  but  the  following  is  a  safe  rule: 

"Never  Write  in  the  name  of  another  person  as  a  Signature, 
unless  you  have  express  authority  to  do  so,  and,  where  possible, 
the  authority  should  be  in  writing  and  signed  by  the  person 
whose  name  is  to  be  signed." 


178  APPLIED  BUSINESS  LAW 

-  EXERCISE  XXV 

230.  Material  facts.  John  King  leads  out  a  horse 
and  says  to  Leo  Marx,  "I  will  sell  this  horse  to  you  for 
$100." 

To  this  offer,  Marx  replies,  "Agreed,  I  will  take  him  at 
that  price,  if  you  will  accept  my  personal  note  payable 
on  demand." 

To  this  qualified  acceptance  King  assents,  and  a  nego- 
tiable note  is  drawn  for  the  amount. 

Analysis:  Are  all  the  elements  of  a  valid  contract  present? 
Are  the  facts  sufficient  to  indicate  a  negotiable  contract?  The 
note  is  in  the  following  form: 

DEMAND  NOTE 

$100.00  No.  XXV 

On  demand,  I  promise  to  pay John  King 

or  order,  One  Hundred Dollars.  For  value 

received ... 

Leo  Marx... 

Who  is  the  maker  of  the  above  note?  The  payee?  The  holder? 
What  non-essentials  are  included?  What  ones  are  omitted? 
Does  this  impair  the  vaUdity  of  the  note?  Is  there  an  absolute 
promise?  By  whom?  In  favor  of  whom?  How  payable? 
When?  For  what  amount?  What  words  render  this  promise 
negotiable? 

Directions:  Make  a  copy  of  the  above  note.  Rewrite  it, 
supplying  at  least  three  non-essentials  that  have  been  omitted. 
Do  these  change  the  essential  nature  of  the  contract? 


NEGOTIABLE  CONTRACTS  170 


EXERCISE  XXVI 

231.  Material  facts.  John  Rex  is  the  owner  of  an 
automobile  which  he  offers  to  sell  to  John  Doe  and  Richard 
Roe  for  $1000.  Doe  and  Roe  accept  this  offer  with  the 
provision  that  Rex  is  to  accept  their  joint  note  payable 
in  sixty  days  at  57  Battery  Street,  El  Paso,  Texas,  with 
interest  at  6%  from  date  of  the  note.  Rex  assents  to  this 
arrangement  of  terms,  and  a  joint  and  several  note  is 
drawn  and  signed  by  Doe  and  Roe. 

Analysis:  Point  out  every  essential  of  a  valid  contract  in  the 
above  set  of  facts.  When  the  writing  is  signed,  will  the  obliga- 
tion be  negotiable?    Should  it  be  negotiable?    Why? 

Joint  and  several  notes  are  written  obligations  in  the 
form  of  negotiable  contracts  by  which  two  or  more  persons  be- 
come liable  jointly  and  individually  for  the  payment  of  the 
obligation.  In  the  above  exercise  Doe  and  Roe  sign  as  makers 
of  the  note,  and  thus  become  jointly  and  individually  liable  for 
its  payment  at  maturity. 

Directions:  Examine  the  above  facts  and  then  arrange  the 
material  in  the  form  of  a  joint  and  several  note.  The  names  are 
fictitious  so  you  may  write  them  in  without  further  authority. 
The  note  will  be  in  something  like  the  following  form: 

JOINT  AND  SEVERAL  NOTE 

$1000.00  El  Paso,  Tex.,  May  7,  1919. 

Sixty  days  after  date,  we,  or  either  of  us,  promise  to  pay  to 

the  order  of John  Rex the  sum  of 

One  thousand Dollars,  At  his  Office,  No  57  Bat- 
tery Street,  El  Paso,  Texas For  value  received, 

with  interest  at  6%  from  date. . . . 

John  Doe  . . . 
Due  July,  6  1919.  Richard  Roe 


180  APPLIED  BUSINESS  LAW 

Compare  the  above  form  with  the  following  which  was  held 
to  be  a  joint  and  several  note.  It  was  held  to  be  joint  because 
it  was  signed  by  both  parties  as  makers.  It  was  held  to  be  sev- 
eral because  each  signer  promised  severally  to  pay. 

"$400.  Ripon,  Wis.  Nov.  4,  1856. 

Thirty  days. .  .after  date,  for  value  received,  I  promise  to 
pay  Putman  C.  Darst, ...  or  order,  Four  Hundred  Dollars, 
with  interest,  at  the  rate  of  twelve  per  cent  per  annum. 

J.  C.  Sherwood 

Wm.  C.  Sherwood  . . .  Surety  . . " 

For  the  decision  in  this  case  by  the  Supreme  Court  of  Wiscon- 
sin, see  Darst  v.  Sherwood,  7  Wis.  at  pages  523,  et  seq. 

Compare  the  following  with  the  above  form,  at  the  same  time 
remembering  that  the  following  note  had  printed  across  the 
left  end,  " Ridgewood  Ice  Company." 

"37,500.00  Brooklyn,  N.  Y.,  Aug  2,  1890. 

Three  months  after  date,  we  promise  to  pay  to  the  order  of' 

Clark  and  Chaplin  Ice  Company Seven  Thousand 

Five  Hundred  Dollars at  Mechanics  Bank;  for  value 

received. 

E.  H.  Close.  .  .Treasurer..  . 

John  Clark,  President." 

Analysis:  Are  all  the  essentials  of  a  negotiable  contract  to 
be  found  in  the  foregoing  example?  Who  are  the  parties  to  the 
note?  Remembering  that  the  name  of  the  "Ridgewood  Ice 
Company"  is  printed  across  the  left  end,  will  this  make  the  note 
the  obligation  of  the  Ice  Company? 

It  is  signed  by  Clark,  President,  and  Close,  Treasurer;  will 
this  fix  the  liability  on  the  Ice  Company?  Suppose  the  Ridge- 
wood Ice  Company  is  insolvent  and  you  are  the  holder  of  the 
note,  will  you  allow  yourself  to  believe  that  Close  and  Clark  were 
personally  liable  on  the  note?  Could  you  argue  that  it  made  no 
more  difference  to  have  signed  as  "E.  H.  Close,  Treasurer" 
than  to  have  signed  as  "E.  H.  Close,  Iceman,"  or  "Farmer"? 


NEGOTIABLE  CONTRACTS  181 

In  an  action  on  the  above  form  of  note,  it  was  held  by  the 
court  that  the  terms  "President"  and  "Treasurer"  were  merely 
terms  of  description  and  had  no  more  effect  upon  the  nature  of 
the  liabiUty  of  the  parties  than  if  they  had  signed  as  "farmer" 
or  "merchant."  It  was  held  that  Close  and  Clark  were  "joint 
makers"  of  the  above  note,  and  therefore  "jointly  and  severally 
liable  on  it." 

To  have  rendered  the  company  liable,  the  form  should  have 
been: 
"Three  months  after  date,  The  Ridgewood  Ice  Company 
promises  to  pay  to  the  order  of  Clark  and  ChapUn  Ice  Com- 
pany, Seven  Thousand  Five  Hundred  Dollars,  at  Mechanics 
Bank,  for  value  received . . . 

John    Clark,    President 

E.  H.  Close,  Treasurer  ..." 
"Brooklyn,  August  2,  1890...." 

Directions:  Write  out  correct  forms  for  the  three  notes  given 
above.  After  your  work  has  been  approved,  mark  them  Exer- 
cises XXVI,  XXVII,  and  XXVIII,  and  file. 

Read,  Cdsco  National  Bank  v.  Clark,  139  N.  Y.  at  pages 
307,  et  seq. 

EXERCISE  XXIX 

232.  Material  facts.  John  Doe  and  Richard  Roe 
contract  to  pay  John  Dale,  or  order,  the  sum  of  $400.  The 
date  of  the  agreement  is  February  25,  1919,  and  payment 
is  to  be  sixty  days  after  date.  The  principal  sum  is  to 
bear  interest  at  6%  per  annum  from  date  until  paid,  and 
if  the  note  is  not  paid  at  maturity  the  makers  promise 
to  pay  all  costs  of  suit  and  attorney's  fees  for  collection. 
The  makers  and  indoi*sers  severally  waive  presentment 
for  payment  and  protest,  and  notice  pf  prQtest,  and  alsQ 
waive  all  homestead  exemptions, 


182  APPLIED  BUSINESS  LAW 

Analysis:  Are  all  the  elements  of  a  valid  negotiable  promis- 
sory note  present  in  the  above  set  of  facts?  Are  there  any  con- 
ditions present  that  would  render  the  note  non-negotiable?  Is 
the  object  or  purpose  of  the  undertaking  legal?  Can  the  makers 
of  a  note  lawfully  waive  protection  afforded  them  by  homestead 
exemption  laws? 

Directions:  Arrange  the  above  facts  in  the  form  of  a  "Joint 
and  Several  Note." 

FORM  OF  "IRONCLAD  NOTE" 

$400...  Wabash,  Ind.,  Feb.  25,  1919. 

Sixty  days  after  date,  we,  or  either  of  us,  promise  to  paj-^  to 

the    order    of John    Dale Four    Hundred 

Dollars Negotiable  and  payable  at  the  "Farmers 

Bank  of  Wabash,"  Indiana,  with  interest  at  6%  per  annum 
from  date,  and  if  not  paid  at  maturity,  all  costs  and  attor- 
ney's fees,  without  relief  of  homestead  exemption  and  ap- 
praisement laws.  The  maker'  and  indorsers,  severally, 
waive  presentment  for  payment,  protest,  and  notice  of  pro- 
test upon  non-payment  of  this  note.    Given  for  value . . . 

John  Doe.  . . 
No.    29X...  Richard    Roe 

Further  Analysis:  (1)  Point  out  the  first  essential  of  a  nego- 
tiable instrument  in  the  form  given  above.  (2)  Is  there  an  ab- 
solute promise  to  pay?  (3)  Is  it  for  a  definite  or  ascertainable 
amount?  Will  court  costs  and  attorney's  fees  not  make  the 
amount  payable  uncertain?  Are  these  involved  if  the  note  is 
paid  at  maturity?  Will  the  addition  of  uncertain  sums- after 
maturity  have  any  effect  on  the  prior  negotiability  of  the  note? 
Are  the  "secondary"  promises  conditioned  upon  the  dishonor 
of  the  note  by  non-payment?  (4)  Is  payment  to  be  at  a  definite 
or  ascertainable  time?    (5)  Is  the  note  negotiable? 

By  the  provisions  of  the  Uniform  Negotiable  Instruments 
Law  it  is  expressly  provided  that  a  promise  to  pay  attorney's 
fees  upon  dishonor  of  a  negotiable  instrument  does  not  impair 


NEGOTIABLE  CONTRACTS  183 

its  negotiability.  Hence,  the  above  form  is  valid  as  a  negotiable 
instrument.  In  some  states,  however,  the  waiver  of  homestead 
exemption  laws  is  not  permitted.  In  such  states  the  above  "wai- 
ver" would  have  no  effect  whatever,  even  when  present. 


EXERCISE  XXX 

233.  Material  facts.  John  Doe,  with  Richard  Roe 
as  surety,  contracts  to  pay  John  Dale,  or  order,  six  hun- 
dred dollars.  The  date  is  February  25,  1919,  and  payment 
is  to  be  made  one  year  after  date,  with  interest  at  six 
per  cent  per  annum  from  date.  This  note  was  given  in  dis- 
charge of  a  debt  owed  by  Doe  to  Dale.  The  maker  of  the 
note  by  his  power  of  attorney  therein  given  authorizes 
the  holder  to  have  judgment  entered  without  an  action 
or  suit  for  the  amount;  he  also  consents  to  the  pay- 
ment of  costs  and  twenty-five  dollars  attorney's  fees, 
and  waives  his  right  of  homestead  exemption. 

Analysis:  Point  out  the  essential  elements  of  a  valid  nego- 
tiable note  in  the  above  facts.  Who  is  the  maker?  Who  the 
surety?  What  are  the  duties  of  a  surety?  What  are  his  rights 
and  liabilities?  Is  he  bound  by  the  provisions  of  the  power  of  at- 
torney? What  are  the  advantages  of  this  form  of  note?  Are 
any  of  these  advantages  in  favor  of  the  maker  or  surety? 

A  surety  is  one  who  is  bound  with  the  principal  upon  the 
original  contract  and  in  the  same  terms.  In  the  case  of  nego- 
tiable paper  the  surety  is  bound  with  the  maker,  and  he  is  held 
to  know  every  default  of  the  maker.  He  is  liable  absolutely  if 
the  maker  does  not  pay,  and  the  holder  does  not  have  to  demand 
pay  from  the  maker  before  he  calls  on  the  surety  to  make 
good.  The  surety  is  jointly  and  severally  liable  with  the  maker, 
and  he  may  be  sued  with  or  apart  from  the  maker,  at  the  elec- 
tion of  the  holder  of  the  note. 


184  APPLIED  BUSINESS  LAW 


^    JUDGMENT  NOTE 

Corry,  Pa.,  Feb.  25,  1919 
One  year  after  date,  for  value  received,  I  promise  to  pay 

•  to  the  order  of John  Dale Six  Hundred 

Dollars,  at  his  place  of  business  -v^th  interest  at  6%  per 
annum,  until  paid.  Furthermore:  To  secure  the  pay- 
ment of  the  above  amount,  I  hereby  authorize,  irrevocably 
any  attorney  of  any  Court  of  Record  to  appear  for  me  in 
such  Court,  in  term  time  or  vacation,  at  any  time  hereafter, 
and  confess  a  Judgment  without  process  in  favor  of  the 
holder  of  this  note,  and  without  relief  from  homestead  ex- 
emption and  appraisement  laws,  for  such  amount  as  may 
appear  to  be  unpaid  thereon,  together  with  costs  and 
Twenty-five  Dollars  attorney's  fees,  and  to  waive  and  re- 
lease all  errors  which  may  intervene  in  any  proceedings 
hereon,  and  consent  to  immediate  execution  upon  such 
judgment,  hereby  ratifying  and  confirming  aU  that  my  said 
attorney  may  do  by  virtue  hereof. 

John  Doe  .... 
No,  SOX  Richard  Roe,  Surety.  . 

Directions:  Make  a  copy  of  the  above  form  of  note.  The 
exact  form  need  not  be  followed,  but  all  the  essential  elements 
of  a  negotiable  note  must  be  retained. 

After  your  work  has  been  approved,  mark  it  Exercise  XXX, 
and  file  with  your  other  papers. 


EXERCISE  XXXI 

234.  Material  facts.  John  Dale  of  your  place  con- 
tracts to  pay  John  Doe,  or  order,  five  hundred  dollars. 
John  O'Dee  is  surety  for  the  performance  of  Dale's  obliga- 
tion. Payment  is  to  be  sixty  days  after  the  current  date, 
at  Doe's  place  of  business,  and  it  is  to  bear  interest  from 


NEGOTIABLE  CONTRACTS  185 

date  at  the  legal  rate.  The  note  is  given  in  discharge  of 
a  balance  due  on  a  bill  of  merchandise.  The  maker  of  the 
note  is  to  give  a  power  of  attorney  by  which  the  holder 
can  confess  judgment  for  the  full  amount  of  the  obliga- 
tion .or  for  any  balance  due  thereon,  and  collect  all  costs 
and  attorney's  fees,  in  the  event  the  note  is  not  paid  at 
maturity,  and  he  expressly  waives  all  benefit  and  protec- 
tion arising  from  homestead  exemption  laws. 

Analysis:  Look  for  each  essential  of  a  valid  negotiable  instru- 
ment in  the  above  statement  of  facts.  Are  there  any  conditions 
that  will  render  the  contract  non-negotiable? 

Directions:  Write  a  negotiable  contract  for  the  above  under- 
taking in  the  form  of  a  judgment  note.  After  your  work  has  been 
approved,  mark  it  Exercise  XXXI,  and  file. 


EXERCISE  XXXII 

235.  Material  facts.  John  Doe  has  contracted  to 
pay  to  the  order  of  The  First  National  Trust  Company 
of  San  Francisco,  California,  six  thousand  dollars;  pay- 
ment is  to  be  made  two  months  after  date.  May  5, 
1919,  at  the  office  of  the  Trust  Company.  The  note  is 
given  in  consideration  of  a  loan  of  money,  and  is  to  bear 
interest  at  6%  per  annum  from  date.  The  maker,  John 
Doe,  has  deposited  with  the  payee  six  first  mortgage  bonds 
of  the  Imperial  Irrigation  Company,  District  No.  1,  Im- 
perial County,  California,  as  collateral  security  for  the 
payment  of  the  amount  of  the  note  at  maturity,  or 
upon  non-payment  of  the  principal  obligation,  the  holder 
is  authorized  to  sell  the  securities  at  public  or  private 
eale,  without  advertising  the  same,  with  the  right  to  pur- 


186  APPLIED  BUSINESS  LAW 

chase  the  securities-  if  the  sale  is  at  a  brokers'  or  stock 
exchange  or  public  sale. 

Analysis:  Find  each  essential  of  a  negotiable  contract  in  the 
above  facts.  Are  there  any  conditions  that  will  render  it  non- 
negotiable?  Who  is  the  holder?  The  payee?  Are  they  the  same? 

COLLATERAL  NOTE 

$6000.  San  Francisco,  Cal.,  May  5,  1919. 

Two  months  after  date,  I  promise  to  pay  to  the  order  of 
The  First  National  Trust  Company  of  San  Francisco, 
Six  Thousand  Dollars,  for  value  received,  with  interest  at 
six  per  cent  per  annum  from  the  date  hereof  until  paid. 

John  Doe  . . . 

I  hereby  certify  that  I  have  deUvered,  and  by  this  writing  do 
hereby  transfer  and  deliver  to  the  said  First  National  Trust 
Company,  as  collateral  security,  for  the  payment  of  this  and  any 
other  liabihties  of  mine  to  the  said  payee,  due  or  to  be- 
come due,  the  following  property,  the  value  of  which  is  appraised 
at  Six  Thousand  Dollars,  viz.:  Six  First  Mortgage  Bonds  of  the 
Imperial  Irrigation  Company,  District  No.  1,  Imperial  County, 
California. 

Furthermore,  I  hereby  authorize  the  said  payee,  or  assigns  to 
sell  the  above  described  property,  or  any  part  thereof,  or  any 
substitutes  therefor,  and  all  additions  thereto,  on  the  maturity 
of  the  above  note,  or  any  time  thereafter,  or  before,  in  the  event 
of  the  said  security  depreciating  in  value,  at  any  public  or  pri- 
vate sale,  without  advertising  the  same,  or  demanding  payment 
or  giving  notice,  with  the  right  to  said  payee  and  assigns  them- 
selves to  be  the  purchasers  when  sale  is  made  at  any  stock  ex-  • 
change,  broker's  board,  or  public  sale.  And  after  deducting  all 
costs  and  expenses,  to  apply  the  balance  to  the  discharge  of  any 
or  all  liabilities  as  above  described,  as  the  payee  or  assigns  may 
elect.  And  it  is  further  agreed  that  in  case  the  proceeds  of  the 
sale  of  the  above  described  property  shall  not  cover  the  prind- 


NEGOTIABLE  CONTRACTS  187 

pal,  interest,  and  expenses,  I  shall  pay   the  deficiency  with 
interest,  forthwith  upon  notice  of  such  deficiency. 

John  Doe  .... 
Directions:  Arrange  a  group  of  facts  similar  to  the  above, 
and  write  a  collateral  note  for  the  parties.    Mark  it  Exercise 
XXXII,  and  file. 

EXERCISE  XXXIII 

236.  Certificates  of  deposit.  A  certificate  of  deposit 
is  an  acknowledgment  of  the  receipt  of  money  as  a  deposit 
and  a  promise  to  pay  it  to  the  depositor,  or  to  his  order, 
after  the  expiration  of  an  agreed  term  of  deposit,  or  upon 
demand  where  no  term  is  specified.  It  is  in  legal  effect 
a  promissory  note  given  by  a  bank  to  a  depositor. 

Material  Facts:  Don  Carlos  Abusto  has  deposited  seven 
thousand  dollars  with  the  Rio  Grande  International  Bank,  of 
El  Paso,  Texas,  for  a  term  of  three  months,  beginning  February 
28, 1919,  the  deposit  to  bear  interest  at  the  rate  of  four  per  cent 
per  annum  during  the  term  of  deposit.  For  this  sum  the  bank 
issues  a  certificate  payable  to  the  order  of  the  depositor. 

CERTIFICATE  OF  DEPOSIT 

$7000...  N0.X33... 

THE  RIO  GRANDE  INTERNATIONAL  BANK 
of  El  Paso,  Texas 

Feb.  28,  1919 
Tras  IS  TO  Certify: 

That  Don  Carlos  Abusto  has  deposi- 
ted in  this  Bank  the  sum  of  Seven  Thousand  Dollars,  for  the 
period  of  three  months,  payable  to  the  order  of  himself,  with 
interest  thereon  at  the  rate  of  four  per  cent  per  annum  dur- 
ing the  term  of  deposit.  Payable,  on  surrender  of  this  cer- 
tificate properly  indorsed,  in  gold  coin. 
Not  subject  to  Check. 

Nemo  A.  Casa,  Cashier. 


188  APPLIED  BUSINESS  LAW 

Analyis:  (1)  Points  out  the  first  essential  of  a  negotiable  in- 
strument in  the  above  certificate  of  deposit.  (2)  Is  there  an 
absolute  promise  to  pay?  (3)  Is  it  for  a  definite  amount?  (4) 
Is  the  payment  conditional?  Upon  what?  What  will  constitute 
a  "proper  indorsement "  of  the  certificate?  (5)  Is  payment  to  be 
at  a  fixed  or  ascertainable  future  time?  (6)  Is  the  obligation 
negotiable?  If  so,  what  words  make  it  negotiable?  (7)  Is  the 
above  certificate  in  the  form  of  a  contract?  Who  are  the  parties 
to  the  contract?  Where  is  it  to  be  performed?  The  laws  of  what 
State  govern  the  interpretation  of  the  contract?  Suppose  the 
depositor  is  a  citizen  of  Mexico,  will  that  change  the  situation  so 
that  other  laws  will  apply  to  the  case? 

Directions:  Make  a  copy  of  the  above  form,  or  make  a  sim- 
ilar certificate  based  upon  different  facts  suited  to  your  own 
locaUty.  When  this  has  been  approved,  mark  it  Exercise 
XXXIII,  and  file  it  with  your  other  negotiable  contracts. 

EXERCISE  XXXIV.  Using  fictitious  names,  arrange  a  group 
of  facts  similar  to  the  above,  but  suited  to  your  own  locaUty, 
and  write  a  certificate  of  deposit  for  the  amount  deposited. 

EXERCISE  XXXV.  Write  a  form  of  certificate  of  deposit 
adapted  to  the  needs  of  a  bank  in  the  commercial  department  of 
a  high  school  or  college. 

After  the  forms  in  the  preceding  exercises  have  been  approved, 
mark  each  with  its  proper  number,  and  file  them  with  your 
other  papers. 

237.  Negotiable  bonds.  At  common  law  a  negotiable 
instrument  could  not  be  under  seal.  If  the  instrument 
were  sealed,  it  became  a  bond  and  was  non-negotiable. 
With  the  advent  of  business  corporations  into  the  daily 
affairs  of  business  this  rule  had  to  be  changed,  since  the 
use  of  the  corporate  seal  was  held  to  be  essential  to  the 
validity  pf  »ny  corporate  contract,    In  other  words,  th^ 


NEGOTIABLE  CONTRACTS  18d 

seal  of  the  corporation  was  held  to  be  an  essential  part  of 
its  signature  and,  therefore,  it  did  not  destroy  the 
negotiability  of  a  bill  or  note  issued  by  the  corporation. 
So,  by  force  of  statute  law  and  by  custom  arising  from  the 
enormous  volume  of  business  carried  on  by  corporations,  a 
promissory  note  issued  by  a  corporation  and  negotiable  in 
form,  although  under  seal  of  the  corporation,  is  held  to  be 
a  negotiable  instrument  and  valid  as  such.  These  notes 
are  known  as  negotiable  bonds,  as  distinguished  from 
non-negotiable  or  registered  bonds  of  corporations. 

Negotiable  bonds  may  be  issued  by  industrial  or  other  cor- 
porations, cities,  towns,  districts,  or  governments.  In  general, 
they  are  classified  as:  (a)  Coupon  bonds,  or  (b)  registered  bonds. 

(a)  Coupon  bonds  are  payable  to  a  particular  person  or 
to  his  order,  or  to  bearer.  They  have  attached  to  them  small 
coupon  notes  representing  each  instalment  of  interest  as  it  ma- 
tures. These  coupons  are  detached  when  the  interest  falls  due 
and  presented  for  payment,  or  they  may  be  detached  before 
before  maturitj^  and  negotiated  by  transfer  like  promissory  notes 
payable  to  bearer,  that  is,  passed  from  hand  to  hand  like  money. 

(b)  Registered  bonds  are  payable  to  designated  persons 
whose  names  are  registered  in  the  books  of  the  corporation,  city,  or 
government,  issuing  them.  They  may  be  transferred  only  by  reg- 
istering the  name  of  the  new  owner  on  the  books  of  the  company 
issuing  them.  Usually  a  small  charge  is  made  for  this  transfer 
and  registration,  especially  where  a  new  certificate  or  bond  is 
issued. 

Negotiable  bonds  may  or  may  not  be  secured  by  mortgage,  but 
in  the  case  of  large  bond  issues  by  industrial  corporations,  there 
is  usually  a  mortgage  made  to  a  trustee  for  the  benefit  of  all  the 
bondholders,  since  it  would  not  be  practicable  to  make  a  separate 
mortgage  for  each  particular  bond. 

Such  bonds  are  signed  by  proper  officials  of  the  issuing  cor- 
poration and  may  be  with  or  without  the  corporate  seal,  though 


190  APPLIED  BUSINESS  LAW 

strictly  to  be  a  bond  the  instrument  should  be  under  seal,  and 
issued  in  the  name  of  the  corporation  and  not  merely  by  the  offi- 
cers of  such  corporation  (see  p.  189,  ante). 
See  also,  Casco  National  Bank  v.  Clark,  139  N.  Y.  at  page  307. 

EXERCISE  XXXVI 

239.  Checks.  What  is  a  check?  How  many  parties 
to  a  check?  Name  them.  What  are  the  relations  of  the 
parties  to  the  check?  May  the  drawer  and  payee  be  the 
same  person?  What  effect  will  this  have  on  the  negotia- 
bility of  the  check?  May  one  lawfully  draw  upon  a  bank 
in  which  he  has  no  funds  to  meet  payment? 

No  person  has  a  right  to  draw  a  check  on  a  bank  miless 
he  has  funds  in  that  bank  subject  to  his  order.  Merely 
over-drawing  one's  account  through  carelessness  is  not 
regarded  as  a  criminal  act,  but  if  one  should  draw  upon  a 
bank  knowing  he  had  no  funds  therein,  he  would  render 
himself  liable  to  fine  and  imprisonment  for  such  act.  It 
is  generally  contrary  to  law  for  a  bank  to  accept  or  honor 
an  over-draft,  even  though  it  be  drawn  by  a  regular  cus- 
tomer of  the  bank. 

Where  one  has  deposited  money  with  a  bank  and  has 
received  a  certificate  of  deposit  for  the  amount,  he  cannot 
draw  on  such  amount  by  check. 

240.  Kinds  of  checks.  For  convenience  checks  may 
be  grouped  in  four  classes:  (1)  Ordinary  check  payable  to 
order  or  to  bearer,  (2)  certified  check,  (3)  cashier's  check, 
and  (4)  bank  check,  commonly  called  a  "bank  draft." 

241.  Material  facts.  John  Doe  has  money  on  deposit 
in  the  "Rio  del  Norte  Bank."  He  has  bought  a  cow  of 
Richard  Roe  for  which  he  has  agreed  to  pay  one  hundred 
dollars,  and  he  wishes  to  make  payment  by  his  personal 


NEGOTIABLE  CONTRACTS  191 

check.    The  date  of  the  transaction  is  March  11,  1919. 
Write  the  check. 

FORM  OF  CHECK 
No.  241  Yuma,  Ariz.,  Mar.  11,  '19 

RIO  DEL  NORTE  BANK 
of  Yuma,   Arizona 

Pay  to  the  order  of Richard  Roe $100.00 

One  Himdred Dollars 

John  Doe 

Analysis:  (1)  Point  out  five  essentials  of  a  negotiable  instru- 
ment in  the  above  form  of  check.  (2)  Name  the  drawer;  the 
drawee;  the  payee.  May  there  be  a  fourth  party  to  the  check? 
(3)  What  words  make  the  check  negotiable? 

Directions:  Make  a  copy  of  the  foregoing  check.  Mark  it 
''specimen."  After  it  has  been  approved,  mark  it  Exercise 
XXXVI,  and  file. 

EXERCISE  XXXVII.  Using  fictitious  names,  make  out 
ten  checks  for  varying  amounts  and  to  different  individuals. 
Write  across  the  face  of  each  in  red  ink  the  word  "Specimen". 
When  these  have  been  approved,  mark  each.  Exercise  XXXVII, 
No.  1,  No.  2,  etc.,  and  file. 

EXERCISE  XXXVIII 

242.  Certified  checks.  It  sometimes  happens  that 
a  payee  wishes  to  be  certain  that  there  are  funds  in  the 
bank  to  meet  payment  of  a  check  before  he  is  willing  to 
receive  it  as  payment  of  an  obligation.  In  such  case  he 
may  require  the  drawer  to  procure  the  check  to  be  certi- 
fied. When  this  is  done,  the  bank  becomes  liable  to  the 
payee  for  the  amount  of  the  check.  It  is  as  if  the  bank 
bad  given  its  own  promissory  note  for  the  amount  of  the 


192  APPLIED  BUSINESS  LAW 

check,  and  it  wilLbe  answerable  for  this  amount  to  any 
holder  in  due  course. 

A  check  is  certified  by  writing  across  its  face,  usually 
in  red  ink,  the  word  "Certified,"  or  an  equivalent  word, 
as  "Good,"  or  "Accepted,"  with  the  date  and  the  signa- 
ture of  the  cashier  or  teller  of  the  bank  who  certified  it. 
The  amount  of  the  check  is  charged  to  the  account  of  the 
drawer,  and  at  the  same  time  an  equal  amount  is  placed 
to  the  credit  of  a  certified  check  fund  for  the  redemption 
of  the  check  when  it  is  presented  to  the  bank  for  payment. 

Should  a  bank  become  insolvent  after  a  check  is  pro- 
cured to  be  certified  by  the  drawer,  the  latter  would  be 
liable  to  the  payee  or  holder  of  the  check  for  the  amount 
named.  But  where  the  payee  or  holder  procures  the'check 
to  be  certified,  and  the  bank  becomes  insolvent,  this  will 
release  the  drawer  from  any  further  liability  on  the  check. 

243.  Material  facts.  John  Doe  has  contracted  for 
the  purchase  of  lands  from  John  Rex,  at  an  agreed  price. 
The  first  payment  is  to  be  one  thousand  dollars,  and.  it  is 
agreed  between  the  parties  that  payment  may  be  made  by 
Doe's  personal  check  if  properly  certified. 

CERTIFIED  CHECK 


.J^l±±_  '^V^ry^.^LWy  ^-^  S-'^pyf 


/^ 


ft^^^^ 


NEGOTIABLE  CONTRACTS  19S 

Analysis:  (1)  Point  out  six  elements  of  a  negotiable  instru- 
ment in  the  above  form  of  check.  (2)  Who  are  the  parties  to 
the  check?  Is  the  bank  a  party  to  the  check?  (3)  Name  the 
drawee;  the  acceptor.  (4)  What  is  the  obUgation  of  a  drawee 
who  accepts  a  check  or  draft?  Is  his  obligation  conditional  or 
absolute? 

Directions:  Make  a  copy  of  the  above  check.  Write  across 
the  face  of  the  check  in  red  ink  the  word  "Specimen."  After 
your  work  has  been  approved,  mark  it  Exercise  XXXVIII,  and 
file. 

EXERCISE  XXXIX.  Using  fictitious  names,  make  out  five 
checks  for  varying  amounts,  and  to  different  individuals,  and  then 
have  each  certified  in  a  different  form,  as: 

"Certified,  May  5,  1919.    John  Dale,  Cashier." 
"Accepted,  May  5,  1919.    John  Dale,  Cashier." 

"Good,  when  properly  indorsed.    May  5,  1919 

"John  Dale... Cashier." 

"Good,  when  properly  indorsed.    May  5,  1919 

"Rio  Del  Norte  Bank,  by  John  Dale,  Cashier. . ." 

Other  forms,  or  words  of  equivalent  meaning  may  be  used. 

Mark  each  of  these  "Specimen,"  number  and  file. 


EXERCISE  XL 

244.  Cashier's  check.  A  cashier's  check  is  a  check 
drawn  by  an  officer  of  a  bank,  usually  the  cashier,  upon 
that  particular  bank.  The  use  of  the  check  saves  the  bank 
from  paying  out  actual  money  at  the  time  it  is  issued. 
Such  checks  may  be  furnished  to  the  customers  of  a  bank 
when  they  wish  to  make  remittances  at  a  distance. 

245.  Material  facts.  John  Doe  of  Yuma,  Arizona, 
wishes  to  make  payment  for  a  bill  of  nursery  stock  pur- 
chased from  a  dealer  at  Phoenix,  Arizona.  He  draws  a 
check  fpr  the  ampunt  pf  the  bill;  $456,  and  presents  it  tp 


194  APPLIED  BUSINESS  LAW 

the  teller  of  the  Rio  Del  Norte  Bank  and  asks  for  a  cash- 
ier's check  for  an  equal  sum,  the  check  to  be  payable  to  his 
own  order. 

CASHIER'S  CHECK 
No.  245 

RIO  DEL  NORTE  BANK 
Of  Yuma,  Arizona 

May  6, 1919. 

Pay  to  the  order  of John  Doe $456.00 

Four  Hundred  fifty-six Dollars 

Cashier's                                                       JohnDale, 
Check  Cashier 

Analysis:  (1)  Point  out  the  essentials  of  a  negotiable  paper 
in  the  above  form  of  check.  (2)  Name  the  parties  to  the  check. 
(3)  State  the  proper  method  of  negotiating  such  a  check. 

Directions:  Make  a  copy  of  the  above  form  of  check.  Mark 
it  as  directed  in  preceding  sections  and  file. 

EXERCISE  XLL  Using  fictitious  names,  make  out  five 
cashier's  checks  for  varying  amounts,  and  to  different  persons, 
signing  them  with  your  own  name  as  cashier  of  the  "North 
River  Bank." 

When  approved,  mark  and  file. 


NEGOTIABLE  CONTRACTS  195 

EXERCISE  XLII 

246.  Bank  drafts.  Bank  drafts  are,  in  fact,  merely 
checks  drawn  by  one  bank  on  another  bank,  and  payable 
on  demand.  Should  the  order  be  payable  at  a  future  time, 
or  a  specified  time  after  date,  or  after  sight,  it  would  then 
be  a  regular  bill  of  exchange.  A  bank  can  issue  a 
check  or  draft  on  another  bank  only  when  it  has  funds  in 
the  custody  of  that  other  bank,  or  a  debt  due  from  it.  In 
any  event,  there  must  be  some  form  of  acceptance  by  the 
drawee  bank,  otherwise  there  will  be  no  obligation  on  the 
part  of  the  drawee  to  pay  the  amount  of  the  draft.  Bank 
drafts  are  a  convenient  form  in  which  to  make  remittances 
at  a  distance,  especially  when  the  drawee  bank  is  at  the 
same  place  as  the  payee  to  whom  payment  is  made. 

247.  Material  facts.  John  Way  of  Ely,  Nevada, 
owes  a  debt  in  Detroit,  Michigan.  He  wishes  to  make 
payment  by  bank  draft,  so  he  draws  his  personal  check 
on  the  Ely  State  Bank  for  the  amount  of  the  debt,  $567, 
and  asks  the  cashier  to  issue  a  bank  draft  for  an  equivalent 
amount.  He  pays  the  cost  of  exchange  in  currency.  The 
draft  is  dated  May  6,  1919. 

BANK  DRAFT 
No.  247... 

ELY  STATE  BANK 

Ely,  Nevada  May  6, 1919. 

Pat  to  the  Order  op 

The   Fordson   Co $567.00 Five 

Hundred  sixty-seven  Dollars. 

To  the  PoNTiAC  Trust  Co.,  John  Rex, 

Detroit,  Michigan President. 

Max  Rowe, 
Cashier. 


196  APPLIED  BUSINESS  LAW 

Analysis:  (1)  Point  out  the  essentials  of  a  negotiable  contract 
in  the  foregoing  bank  draft.  (2)  May  this  be  classed  as  a  bill 
of  exchange?  (3)  Name  the  parties  to  the  draft.  (4)  What  are 
the  rights  and  obligations  of  each? 

Direction:  Make  a  copy  of  the  bank  draft.  Mark  as  pre- 
viously directed  and  file. 

EXERCISE  XLIII.  Using  fictitious  names,  make  at  least 
three  forms  of  bank  draft  and  sign  your  own  name  as  cashier  of 
the  "North  River  Bank."  Have  another  sign  as  president  of  the 
bank. 

When  these  are  approved,  file  as  usual. 

EXERCISE  XLIV 

248.  Bills  of  exchange.  Bills  of  exchange  are  the 
oldest  forms  of  negotiable  paper.  At  present  they  are 
variously  known  as  bills,  drafts,  checks,  money  orders, 
letters  of  credit,  travelers'  checks,  and  the  like. 

A  bill  of  exchange  is  an  unconditional  order  in  writing 
for  the  payment  of  money,  signed  by  the  drawer,  and  ad- 
dressed to  a  drawee.  It  is  payable  on  demand  or  at  a 
fixed  or  ascertainable  future  time.  It  must  be  for  a  sum 
certain  in  money  and  payable  to  the  order  of  a  designa- 
nated  person  or  to  bearer. 

The  person  drawing  the  bill  is  known  as  the  drawer; 
the  person  to  whom  it  is  addressed  is  the  drawee,  and  the 
person  to  whom  it  is  payable  is  the  payee.  The  bill  itself 
is  merely  an  order  for  the  payment  of  money.  It  is  not 
binding  on  the  drawee  until  he  has  signified  his  acceptance 
or  assent  to  honor  it.  The  acceptance  should  be  made  by 
writing  the  word  "Accepted"  and  signing  the  name  of  the 
acceptor  across  the  face  of  the  bill,  with  the  date  of  the 
acceptance. 


NEGOTIABLE  CONTRACTS  197 

249.  Material  facts.  John  Doe  of  Greeley,  Colorado, 
owes  a  debt  in  Chicago,  Illinois.  He  has  shipped  potatoes 
to  the  X  Company  which  owes  him  to  the  amount  of  SIOOO. 
Accordingly,  he  draws  an  order  on  The  X  Company,  of 
Chicago,  payable  to  his  creditor,  March,  Field  &  Co.,  for 
the  amomit  of  his  debt,  $149.  The  bill  was  drawn  May 
5,  1919. 

Analysis:  Point  out  the  foundation  elements  of  a  valid  bill 
of  exchange  in  the  above  facts.  Name  the  parties  to  the  bill: 
the  drawer,  drawee,  and  the  payee,  also  the  acceptor  and  the 
holder. 

BILL  OF  EXCHANGE 

No.   249X  Greeley,  Colo.,  May  5,  1919. . . . 

At  ten  days  sight pay  to  the  order  of 

March,  Field  &  Co $149.     One  Hundred  forty- 
nine Dollars 

For  value  received. . . 

Charge  to  the  account  of . . . 

John  Doe 
To  the  X  Company ... 
Chicago,  Illinois . . . 

Bills  of  exchange  are  of  two  general  classes,  inland  and 
foreign.  An  inland  bill  is  one  that  is  payable  within  the 
state.  On  refusal  of  acceptance  or  payment,  protest  of  the 
paper  is  not  required  in  order  to  hold  the  drawer  and  in- 
dorsers  liable.  A  foreign  bill  is  one  drawn  or  payable 
put§ide  the  stat^.   Upon  dishonor,  the  paper  must  be  pro* 


198  APPLIED  BUSINESS  LAW 

tested  and  notice  given  in  order  to  render  the  drawer  and 
indorsers  liable  on  the  bill. 

Directions:  Make  a  copy  of  the  above  form  of  bill;  after  it 
is  approved,  mark  in  the  usual  manner  and  file  with  your  other 
negotiable  papers. 

EXERCISE  XLV.  Using  fictitious  names,  make  out  five  bills 
of  exchange,  part  inland  and  part  foreign  bills.  When  approved, 
mark  and  file. 

250.  Negotiable  documents  of  title.  Generally  speak- 
ing, negotiable  documents  of  title  are  of  two  forms,  (1) 
Bills  of  lading,  and  (2)  warehouse  receipts. 

251.  Bills  of  lading.  While  negotiable  documents  of 
title  are  classed  as  negotiable  contracts  they  are  not  nego- 
tiable instruments  in  the  strict  sense  of  the  word,  because 
they  are  not  promises  for  the  payment  of  money,  but  are 
promises  for  the  safe  delivery  of  some  specified  personal 
property.  These  contracts  have  some,  but  not  all,  of  the 
characteristics  of  negotiable  instruments,  the  principal  one 
being  that  they  may  be  transferred  readily  from  one 
holder  to  another,  thus  giving  him  title  to  the  goods  rep- 
resented by  the  document. 

A  bill  of  lading  is  both  a  receipt  and  a  contract.  It  is 
a  receipt  for  goods  delivered  to  a  common  carrier  and  a 
contract  for  their  delivery  to  a  designated  destination. 
Bills  of  lading  are  of  two  forms,  the  ordinary  bill,  which  is 
negotiable  in  form,  and  the  "straight  bill,"  or  non-nego- 
tiable form.  The  parties  to  a  bill  of  lading  are  the  shipper, 
or  consignor;  the  consignee,  or  person  to  whom  the  goods 
are  shipped;  and  the  carrier  of  the  goods. 

EXERCISE  XLV.  It  is  suggested  that  you  should,  if  possi- 
ble, go  to  the  freight  office  of  a  railway  company,  steamship  com- 


NEGOTIABLE  CONTRACTS  lOd 

pany,  or  other  common  carrier  of  freight,  and  procure  copies  of 
the  different  forms  of  bills  of  lading. 

If  the  clerk  has  time,  you  should  ask  him  to  explain  the  method 
of  filling  out  the  different  parts  of  the  bill.  When  your  forms  are 
filled  in,  you  should  write  across  the  face  of  each  in  a  bold  hand 
the  words  "Specimen  Bill." 

File  these  bills  with  your  other  papers. 

262.  (2)  Warehouse  receipts.  A  warehouse  receipt 
is  both  a  receipt  and  a  written  contract  of  bailment.  It 
acknowledges  receipt  of  certain  described  goods  which 
have  been  received  by  the  warehouseman  for  the  purpose 
of  storage  and,  usually,  for  the  purpose  of  subsequent 
sale,  and  delivery. 

In  the  grain  and  cotton  business  milUons  of  dollars 
worth  of  these  products  are  stored  in  public  warehouses, 
or  "elevators,"  and  receipts  are  issued  for  the  goods  thus 
stored.  These  goods  may  then  readily  be  bought  and  sold 
and  title  to  them  be  transferred  by  a  transfer  of  the  nego- 
tiable warehouse  receipts,  or  they  may  be  pledged  by 
merely  pledging  the  evidence  of  title  in  the  form  of  the 
warehouse  receipts. 

As  in  the  case  of  bills  of  lading,  warehouse  receipts  may 
be  either  negotiable  or  non-negotiable,  as  the  circum- 
stances may  require,  and  in  either  case  there  are  only  two 
parties  to  the  contract  as  evidenced  by  the  warehouse  re- 
ceipt; these  are  the  bailor,  or  depositor,  and  the  bailee  or 
warehouseman. 

EXERCISE  XLVII 

253.  Material  facts.  John  Dale  of  El  Centro,  Cali- 
fornia, having  100  bales  of  Durango  cotton  has  delivered 


200  APPLIED  BUSINESS  LAW 

it  to  the  Imperial  Cotton  Exchange  for  storage  in  one  of 
their  warehouses.    The  receipt  was  issued  January  7, 1919. 

Analysis:  Examine  the  following  form  of  receipt  and  point 
out  the  elements  of  negotiability.  Name  the  bailor;  the  bailee. 
What  are  the  rights  and  obligations  of  each  party  to  the  receipt? 

What  degree  of  care  must  the  warehouseman  exercise  in  pro- 
tecting the  property  bailed?  Is  he  an  insurer  of  the  safe  delivery 
of  the  goods? 

WAREHOUSE  RECEIPT 

Warehouse  No.  1  Receipt  No.  253 

Imperial  Cotton  Exchange 

El  Centro,  California 

January  7,  1919 

Received  in  Storage  from John  Dale One 

Hundred    Bales    Durango    Cotton,    First-Grade 

deliverable  to  the  order  of  the  above  named John 

Dale properly  indorsed  hereon  and  upon  the  sur- 
render of  this  receipt,  and  the  payment  of  all  charges  and 
advances  as  herein  provided. 

It  is  specially  agreed  by  the  holder  of  this  receipt  that  the 
cotton  herein  described  may  be  stored  with  other  cotton 
but  the  specific  bales  above  mentioned  and  stencil  marked 
. . .  ."(JD)" shall  be  deUvered  to  order  as  above  pro- 
vided. 

Loss  by  fire  arising  from  no  fault  of  the  bailee  to  be  at  the 
owner's  risk. 
Not   Good   Unless   Countersigned   and    Registered 

100    Bales 52,000    lbs 

John  Rex President 

John  Day,  Manager. 
(Registered)  Imperial  Cotton  Exchange. 

Directions:  Make  a  copy  of  the  above  receipt.  Mark  it 
"Specimen,"  with  the  proper  number  and  file  with  your  other 
papersi 


NEGOTIABLE  CONTRACTS  201 

EXERCISE  XLVIII.  Using  fictitious  names,  make  out  a 
receipt  for  1000  bushels  of  No.  1  blue  stem  wheat.  Also,  a  re- 
ceipt for  100  bales  of  First  Grade  Peruvian  cotton.  Also,  for 
1000  bushels  First  Grade  "Pearl  of  Greely"  potatoes.  After 
these  receipts  have  been  approved,  mark  them  in  the  usual  man- 
ner and  file. 


GROUP  IV 
CONTRACTS  CONCERNING  LAND 

264.  Land  contracts.  Contracts  for  the  sale  of  lands, 
or  for  any  interest  in  or  concerning  lands,  must,  by  the 
Statute  of  Frauds,  be  in  writing  (see  Part  I,  sec.  5,  page 
12).  Leases  for  short  terms,  as  for  a  year  or  less,  are  not 
included  in  this  provision.  The  writing  may  be  just  a 
brief  statement,  or  a  more  formal  document.  In  any  case 
it  should  set  out  fully  the  terms  and  all  the  provisions  of 
the  agreement  and  be  signed  by  the  parties.  It  must  be 
remembered  that  this  writing  does  not  operate  to  convey 
the  legal  title  to  the  land,  but  this  latter  is  effected  by  a 
deed  of  conveyance.  The  land  contract  is  made  merely 
as  evidence  of  a  binding  agreement  between  the  parties 
for  the  sale  and  future  conveyance  of  title  to  an  estate  in 
land. 

EXERCISE  L 

255.  Material  facts.  On  the  9th  day  of  May,  1919, 
John  Whitacre,  of  Imperial,  Imperial  County,  California, 
agreed  to  sell  forty  acres  of  land  to  Elton  Farmer,  of 
Wausau,  Wisconsin,  at  an  agreed  price  of  $400  an  acre. 
The  land  is  described  as  the  S.  E.  \i  of  the  S.  E.  y^  of 
Section  7,  Tp.  15  S.,  S.  B.  M.,  Range  15  East. 

With  the  land  and  as  part  of  the  conveyance  Whitacre 
agreed  to  convey  ten  shares  of  stock  in  the  Imperial  Irri- 
gation Company,  the  water  to  be  supplied  to  the  land  for 

202 


CONTRACTS  CONCERNING  LAND         203 

irrigation  and  domestic  use.  Farmer  is  to  pay  $4000 
cash  down  at  the  time  of  the  conveyance,  and  $4,000  a 
year  until  the  entire  amount  is  paid.  Conveyance  is  to  be 
executed  and  the  first  payment  made  within  30  days  of 
the  date  of  the  agreement  to  sell. 

It  is  now  necessary  to  write  out  a  land  contract  or  form 
of  agreement  for  the  parties,  pending  the  future  convey- 
ance of  the  legal  title  to  the  land  and  water  rights  in  ques- 
tion. 

LAND  CONTRACT 

This  Agreement,  Made  this  the  9th  day  of  May,  1919,  by 
and  between John  Whitacre of  Imperial,  Im- 
perial County,  Cahfornia,  of  the  first  part,  and Elton 

Farmer of  Wausau,  Waukesha  County,  Wisconsin,  of 

the  second  part, 

WITNESSETH,  That  the  said  parties  have  and  do  hereby 
mutually  covenant  and  agree  as  follows:  That  the  party  of  the 
first  part  is  to  sell,  and  the  party  of  the  second  part  is  to  pur- 
chase. All  that  Tract  or  Parcel  of  Land,  situate  in  the 
County  of  Imperial,  and  State  of  California,  and  described  as 
the  S.  E.  \i  of  the  S.  E.  \i  of  Section  7,  Tp.  15,  South,  S.  B.  M., 
Range  15  East,  by  United  States  Government  Survey;  the  same 
to  be  40  acres  more  or  less,  and  with  the  said  land  and  as  appur- 
tenant to  it,  the  party  of  the  first  part  agrees  to  transfer  and  does 
hereby  transfer  to  the  party  of  the  second  part  Ten  Shares  of 
stock  in  the  Imperial  Irrigation  Company,  as  a  permanent  .and 

perpetual  water  right  for  the  said  land,  for  the  sum  of 

Sixteen  Thousand  Dollars  ($16,000.00) which  sum  the 

said  party  of  the  second  part  hereby  agrees  to  pay  to  the  party 
of  the  first  part  as  follows:  Four  Thousand  Dollars  cash  down 
at  the  time  of  the  delivery  of  the  deed  of  conveyance,  which  is  to 
be  within  thirty  days  from  the  date  hereof,  and  Four  Thousand 
Dollars  a  year  on  the  first  day  of  May  of  each  year  until  the  en-i 


204  APPLIED  BUSINESS  LAW 

tire  balance  of  Twelve  Thousand  Dollars  is  paid,  and  in  addi- 
tion to  this  the  party  of  the  second  part  agrees  to  pay  all  taxes 
and  assessments  of  every  kind  that  may  be  levied  upon  the  said 
land  or  water  rights,  above  described,  from  and  after  the  date 
hereof  until  the  said  purchase  price  shall  have  been  fully  paid. 

And  the  said  party  of  the  first  part  on  receiving  such  pay- 
ment, at  the  time  and  in  the  manner  above  provided,  shall,  at 
his  own  proper  costs  and  expenses,  execute  and  deliver  to  the 
said  party  of  the  second  part,  or  to  his  assigns,  a  warranty  deed, 
for  the  conveying  and  assuring  to  him,  or  to  them,  the  title 
to  the  above  described  premises  in  fee  simple.  And  it  is  further 
agreed  that  the  above  stipulations  shall  apply  to  and  bind  the 
heirs,  executors,  administrators  and  assigns  of  the  respective 
parties  to  this  agreement. 

In  Witness  Whereof,  The  said  parties  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

In  presence  of  John  Whitacre    (Seal) 

John  Day Elton  Faemeb  (Seal) 

ACKNOWLEDGMENT 
State  of  California 


'  ss 
County  of  Imperial.  ' 

On  the  9th  day  of  May,  1919,  before  me,  personally  appeared 
John  Whitacre  and  Elton  Farmer,  to  me  known,  and  known  to 
be  the  individuals  described  in,  and  who  executed  the  foregoing 
instrument,  and  they  severally  acknowledged  to  me  that  they 
executed  the  same  as  their  own  voluntary  act. 

(Notarial  Seal.)  Richard  Roe, 

Notary  Public  for 
Imperial  County,  Calif. 

Analysis:  (1)  Give  the  heading  of  this  contract.     (2)  What 
is  the  initial  agreement?    (3)  State  the  counter  agreement.    (4) 
Give  the  conclusion.    (5)  What  is  the  purpose  of  the  acknowledg-  ' 
ment?    (6)  Where  is  the  contract  to  be  carried  out?    (7)  The 


CONTRACTS  CONCERNING  LAND        205 

laws  of  what  state  govern  in  contracts  concerning  real  property? 
(8)  Are  all  the  essentials  of  a  valid  contract  present  here?  (9) 
Is  the  contract  required  to  be  in  writing?  Why?  (10)  Suppose 
the  purchaser  had  been  an  alien  enemy,  would  the  contract  be 
valid  and  binding  on  Whitacre? 

Directions:  Make  a  copy  of  the  above  land  contract.  When 
it  has  been  approved,  mark  it  Exercise  L,  and  file. 

EXERCISE  LI.  Using  fictitious  names  and  adapting  the  con- 
tract to  your  own  particular  neighborhood  or  locality,  write  a 
similar  form  of  agreement  for  the  sale  of  a  tract  of  land. 

EXERCISE  LI  I.  Formulate  a  set  of  facts  and  write  out  a  form 
of  agreement  for  the  sale  of  a  city  lot  in  your  community  or  city. 

After  the  work  in  each  of  the  above  exercises  has  been  ap- 
proved, mark  them  properly  and  file. 

EXERCISE  LIII 

266.  Deeds  of  conveyance.  Title  to  land  can  be 
transferred  only  by  a  formal  writing  known  as  a  deed  of 
conveyance,  or  by  some  matter  of  record  as  by  a  decree 
of  court.  In  this  connection  we  are  concerned  only  with 
conveyance  by  act  of  the  parties,  and  that  limits  us  to 
deeds  of  conveyance. 

At  common  law  any  writing  under  seal  was  classed  as 
a  deed.  Hence,  there  were  many  forms  of  deeds.  But 
at  present  it  is  best  to  limit  the  use  of  the  word  deed  to 
deeds  of  conveyance  and  mortgage  deeds,  or  deeds  of 
trust.  There  are  two  common  kinds  of  deeds  which  oper- 
ate to  convey  title  to  real  property;  these  are,  (1)  War- 
ranty deeds,  and  (2)  quitclaim  deeds.  Each  of  these  is 
found  in  two  forms,  the  long,  or  common-law  form,  and 
the  short,  or  statutory,  form. 

267.  Material  facts.  About  ten  days  after  Whitacre 
and  Fanner  nmde  the  land  contract  as  illustrated  in  Ex- 


206  APPLIED  BUSINESS  LAW 

ercise  L,  they  arranged  to  complete  the  transaction  by 
having  Whitacre  execute  a  deed  by  means  of  which  title 
to  the  land  and  water  in  question  was  to  be  conveyed  to 
Farmer  in  consideration  of  the  payment  of  $4000  by  the 
latter.    The  deed  was  executed  May  20,  1919. 

WARRANTY  DEED 

This  indenture,  Made  this  the  twentieth  day  of  May,  in  the 

year  one  thousand  nine  hundred  and  nineteen,  Between 

John  Whitacre of  Imperial,  Imperial  County,  CaUf ornia, 

of  the  first  part,  and Elton  Farmer of  Wausau, 

Waukesha  County,  Wisconsin,  of  the  second  part, 

WITNESSETH,  That  the  said  party  of  the  first  part,  in  con- 
sideration of  the  sum  of  Sixteen  Thousand  Dollars,  lawful  money 
of  the  United  States  of  America,  to  him  in  hand  paid  by  the  party 
of  the  second  part,  in  manner  and  form  as  follows :  Four  Thousand 
Dollars  to  be  paid  cash  in  hand  at  the  time  of  the  execution  of  this 
deed,  the  receipt  whereof  is  hereby  acknowledged;  Four  Thou- 
sand Dollars  to  be  paid  on  the  first  day  of  May,  1920,  Four  Thou- 
sand Dollars  to  be  paid  on  the  first  day  of  May,  1921,  and  the 
balance  of  Four  Thousand  Dollars  to  be  paid  on  the  first  day 
of  May,  1922,  the  deferred  payments  to  bear  interest  at  the  rate 
of  six  per  centum  per  annum  until  paid.  Does  Hereby  Grant 
and  release  unto  the  said  party  of  the  second  part,  his  heirs  and 
assigns  forever, 

All  that  Tract  or  Parcel  of  Land  situate  in  the  County 
of  Imperial  and  State  of  California,  located  and  described  as 
follows:  The  Southeast  quarter  of  the  Southeast  quarter  of  Sec- 
tion seven,  Township  fifteen.  South,  San  Bernardino  Meridian, 
Range  fifteen  East,  containing  forty  acres,  more  or  less,  by 
United  States  Government  Survey,  Together  with  the  appur- 
tenances, and  all  the  estates  and  rights  of  the  said  party  of  the 
first  part  in  and  to  said  premises,  and  with  the  said  land  and  as 
appurtenant  to  it  the  party  of  the  first  part  agrees  to  transfer 
and  does  hereby  transfer  to  the  party  of  the  second  part  Ten 


CONTRACTS  CONCERNING  LAND        207 

Shakes  of  Stock  in  the  Imperial  Irrigation  Company,  as  a  per- 
manent and  perpetual  water  right  for  the  said  land,  for  the  con- 
sideration above  described. 

To  Have  and  to  Hold  the  above  granted  premises  unto  the 
said  party  of  the  second  part,  his  heirs  and  assigns  forever.  And 
the  said  party  of  the  first  part,  does  hereby  Covenant  with  the 
said  party  of  the  second  part  as  follows: 

First,  that  the  party  of  the  first  part  is  seized  of  the  said  prem- 
ises in  fee  simple,  and  has  good  right  to  convey  the  same. 

Second,  that  the  party  of  the  second  part  shall  quietly  enjoy 
the  premises. 

Third,  that  the  said  premises  are  free  from  encumbrances. 

Fourth,  that  the  party  of  the  first  part  will  execute  or  procure 
any  further  necessary  assurances  of  the  title  to  said  premises. 

Fifth,  that  the  said John  Whitacre party  of  the 

first  part  will  forever  warrant  and  defend  the  title  to  said  prem- 
ises. 

In  Witness  Whereof,  the  said  party  of  the  first  part  has 
hereunto  set  his  hand  and  seal  the  day  and  year  first  above  writ- 
ten. 

In  the  presence  of  John  Whitacre   (Seal). 

John  Dale 

State  of  California  1 
County  and  J-  ss. 

City  of  Imperial J 

On  this  twentieth  day  of  May,  in  the 

year  1919,  before  me,  the  subscriber,  personally  appeared 

John  Whitacre to  me  personally  known  to  be  the  same  per- 
son described  in  and  who  executed  the  foregoing  instrument, 
and  he  acknowledged  to  me  that  he  executed  the  same. 

(Notarial  Seal.)  Richard  Roe 

Notary  Public  for  Imperial 
County,  California , . , 


£06  APPLIED  BUSINESS  LAW 

Analysis:  (1)  Who  are  the  parties  to  the  above  deed?  (2) 
Where  is  the  conveyance  effective?  (3)  The  laws  of  what  state 
govern?  (4)  Which  party  is  known  as  the  "grantor"?  As 
the  grantee?  (5)  Would  the  conveyance  be  effective  without 
the  knowledge  or  assent  of  the  grantee?  (6)  Must  he  assent 
to  the  grant?  How?  (7)  What  is  the  purpose  of  the  acknowl- 
edgment? Why  does  the  grantee  not  acknowledge  his  part  to  the 
transaction? 

Directions:  Make  a  copy  of  the  above  deed,  and  mark  it 
Exercise  LIII,  and  file. 

Write  the  name  of  the  grantor  as:  "John  Whitacre,  by  A. 
Student,  Agent,"  supplying  the  seal. 

EXERCISE  LIV.  Using  the  facts  given  in  Exercise  LI  as  a 
basis  for  your  work,  draft  a  form  of  deed  of  conveyance  by  which 
the  title  to  the  land  in  question  is  conveyed  from  the  grantor  to 
the  grantee.  After  this  deed  has  been  approved,  mark  it  prop- 
erly and  file  with  the  land  contract. 

EXERCISE  LV.  Using  the  facts  given  in  Exercise  LII  as  a 
basis  for  a  deed,  draft  a  form  of  conveyance  which  will  transfer 
the  title  to  the  lot  in  question  from  the  grantor  to  the  grantee. 
After  this  deed  has  been  approved,  mark  it  properly  and  file 
with  the  land  contract. 

EXERCISE  LVI 

268.  Short  form  of  deed.  The  preceding  form  of 
warranty  deed  is  the  long,  or  common-law  form.  Such 
deeds  are  usually  drawn  by  lawyers  or  conveyancers  and 
require  more  or  less  legal  training  and  skill  to  draft  them 
properly.  In  order  to  make  the  matter  of  transferring 
title  to  real  property  quite  simple  so  a  man  of  average  ex- 
perience can  readily  write  out  a  deed  of  conveyance,  stat- 
utes have  been  enacted  in  many  states  which  provide  for 
fL  short  fonn  of  deed.    This  statutory  form  of  deed  is  just 


CONTRACTS  CONCERNING  LAND        209 

as  effective  for  conveying  title  to  real  property  as  the 
older  form. 


SHORT  FORM  OF  DEED 

This  Indenture  Witnessbth:  That  John  Whitacre  of  Im- 
perial, Imperial  County,  California Conveys  and  War- 

BANTS 

To  Elton  Farmer  of  Wausau,  Waukesha  County,  Wisconsin, 
for  the  sum  of  Sixteen  Thousand  Dollars,  the  following  Real 
Estate  in  Imperial  County,  California: 

The  Southeast  quarter  of  the  Southeast  quarter  of  Section 
seven,  Township  fifteen,  South,  San  Bernardino  Meridian,  Range 
fifteen  East,  containing  forty  acres,  more  or  less,  by  United 
States  Government  Survey,  Together  With  Ten  Shares  of 
Stock  in  the  Imperial  Irrigation  Company,  as  a  permanent  and 
perpetual  water  right  for  the  said  land,  for  the  consideration 
above  mentioned. 

In  Witness  Whereof,  the  said  John  Whitacre  has  hereunto 
set  his  hand  and  seal,  this  twentieth  day  of  May,  1919. 
Witnessed  by  ,  John  Whitacre  , . .  (Seal) . 

John  Dale. 

Analysis:  (1)  Point  out  all  the  essential  parts  of  a  valid  con- 
veyance in  the  above  deed.  (2)  What  is  the  effect  of  the  words 
*' Conveys  and  Warrants"  ? 

Note:  These  words  are  held  to  be  words  of  grant  and  of  gen- 
eral warranty.  In  a  way  they  take  the  place  of  the  Five  war- 
ranties or  covenants  set  out  fully  in  the  long  form  of  deed.  Exer- 
cise Llll. 

The  acknowledgment  in  the  above  deed  and  in  the  following 
exercises  will  be  the  same  as  or  similar  to  the  acknowledgments 
already  given. 

Directions:  Make  a  copy  of  the  above  deed.  Writ^  an  ac- 
|£nowled|ment,  mark  and  fil? 


210  APPLIED  BUSmESS  LAW 

EXERCISES  LVII  and  LVIII.  Write  short  forms  of  deeds 
for  Exercises  LIV  and  LV,  with  an  acknowledgment  for  each. 
Mark  properly  and  file. 

EXERCISE  LIX 

259.  Quitclaim  deeds.  A  quitclaim  deed  operates 
to  convey  whatever  title  the  grantor  may  have  to  the 
grantee,  and  it  places  all  risk  as  to  whether  or  not  there 
is  a  good  title  upon  the  grantee.  This  deed  is  found  both 
in  the  long  and  short  form. 

260.  Material  facts.  The  following  is  a  short  form 
of  quitclaim  deed  based  upon  the  same  set  of  facts  used 
in  Exercise  LIII,  except  that  payment  is  to  be  made  at  the 
time  of  the  execution  and  delivery  of  the  deed. 

QUITCLAIM  DEED 

I,  John  Whitacre  of  Imperial,  Imperial  County,  California, 
Quitclaim  unto  Elton  Farmer,  of  Wausau,  Waukesha  County, 
Wisconsin,  the  following  described  real  estate  in  Imperial  County, 
California: 

The  Southeast  quarter  of  the  Southeast  quarter  of  Section 
seven.  Township  fifteen,  South,  S.  B.  M.,  Range  fifteen,  East, 
Containing  forty  acres,  more  or  less,  with  Ten  Shares  op 
Stock  in  the  Imperial  Irrigation  Company,  as  a  permanent  and 
perpetual  water  right  for  the  said  land,  for  the  sum  of  Sixteen 
Thousand  Dollars,  receipt  of  which  is  hereby  acknowledged. 

Witness  my  hand  and  seal  this  the  20th  day  of  May,  1919. 
Witnessed  by  John  Whitacre  (Seal). 

Richard  A.  Rex. 

Analysis:  Examine  the  preceding  form  for  the  essential  ele- 
ments of  a  conveyance  of  real  property.  Does  it  give  good  title 
to  the  land?   Upon  whom  does  the  risk  of  title  devolve? 


CONTRACTS  CONCERNING  LAND        211 

Directions:  Make  a  copy  of  the  above  form  of  quitclaim 
deed.  Add  an  acknowledgment,  and  when  it  is  approved,  mark 
it  Exercise  LIX,  and  file. 

EXERCISES  LX  and  LXI.  Using  the  material  in  Exer- 
cises LVTI  and  LVIII,  write  the  conveyances  in  the  form  of 
quitclaim  deeds. 

Write  acknowledgments  for  each  of  these  deeds  and  when  your 
work  has  been  approved,  mark  them  properly  and  file. 

EXERCISE  LXII 

261.  Mortgages.  The  mortgage  deed  is  another  form 
of  contract  which  affects  the  title  to  real  property.  This 
in  form  is  a  conveyance  of  the  title  to  real  property,  but 
it  has  a  provision  that  if  the  party  who  owes  an  obligation 
pays  it  on  or  before  a  specified  time  then  the  conveyance 
is  to  be  of  no  effect.  The  debtor  or  party  who  gives  the 
mortgage  to  secure  his  debt  is  known  as  the  mortgagor, 
while  the  creditor,  or  party  to  whom  the  mortgage  is  given 
is  the  mortgagee.  The  mortgage  is  simply  a  lien  on  real 
property  as  a  security  for  the  payment  of  a  debt.  The  debt 
is  generally  evidenced  by  a  note  or  bond  for  the  amount, 
but  the  mortgage  would  be  perfectly  valid  without  either 
note  or  bond. 

262.  Material  facts.  Elton  Farmer  has  borrowed 
six  thousand  dollars  for  the  payment  of  which  he  has 
given  a  mortgage  on  the  forty-acre  tract  of  land  which  he 
purchased  from  John  Whitacre.  The  debt  is  evidenced 
by  a  promissory  note  made  payable  to  the  order  of  Rich- 
ard A.  Rex.  The  term  of  credit  is  three  years  and  the 
loan  is  to  bear  interest  at  the  rate  of  six  per  cent  per  an- 
num.   The  mortgage  deed  was  executed  on  the  10th  day 


«1«  APPLIED  BUSINESS  LAW 

of  May,  1919,  to  secure  the  payment  of  the  amount  of  the 
loan. 

MORTGAGE 

This  Indenture,  Made  the  tenth  day  of  May,  1919,  Be- 
tween  Elton  Farmer now  of  Imperial,  Im- 
perial County,  California,  of  the  first  part,  and Richard 

A.  Rex of  the  same  place,  of  the  second  part, 

WITNESSETH,  That  the  said  Elton  Farmer  is  justly  indebted 
to  the  said  party  of  the  second  part  in  the  sura  of  Six  Thousand 
Dollars,  secured  to  be  paid  by  his  certain  negotiable  promissory 
note,  bearing  even  date  herewith,  conditioned  for  the  payment 
of  the  said  sum  of  Six  Thousand  Dollars  on  the  tenth  day  of  May, 
1922,  and  the  interest  thereon,  to  be  computed  from  the  date  of 
the  note  at  the  rate  of  six  per  cent  per  annum,  and  to  be  paid 
semi-annually  on  the  tenth  day  of  May  and  of  November  of  each 
year,  until  the  whole  sum  of  said  principal  be  paid,  with  the  priv- 
ilege to  the  party  of  the  first  part,  his  executors,  administra- 
tors, or  assigns,  on  any  day  when  interest  is  payable,  to  pay  off 
the  principal  of  said  mortgage  in  sums  of  one  thousand  dollars 
or  more  at  every  such  payment. 

Now  This  Instrument  Witnesseth:  That  the  said  party 
of  the  first  part,  for  the  better  securing  the  payment  of  the  said 
sum  of  money  mentioned  in  the  promissory  note  given  herewith, 
with  interest  thereon,  and  also  for  and  in  consideration  of  one 
dollar  paid  by  the  said  party  of  the  second  part  the  receipt  of 
which  is  hereby  acknowledged,  does  hereby  grant  and  release 
unto  the  party  of  the  second  part,  and  to  his  heirs  and  assigns 
forever.  All  That  Tract  or  Parcel  op  Land  situate  in  the 
County  of  Imperial,  California,  and  more  particularly  described 
as  follows:  The  Southeast  quarter  of  the  Southeast  quarter  of 
Section  seven.  Township  fifteen.  South  S.  B.  M.,  Range  fifteen. 
East,  containing  forty  acres,  more  or  less,  according  to  United 
States  Government  Survey,  Together  with  Ten  Shares  of  Stock 
in  the  Imperial  Irrigation  Company,  as  a  permanent  and  per- 
petual water  right  for  the  said  land.  Together  With  the  ap- 
purtenances and  all  the  estate  and  rights  of  the  said  party  of  the 


CONTRACTS  CONCERNING  LAND        £13 

first  part  in  and  to  the  said  premises,  To  Have  and  to  Hold 
the  above  granted  premises  unto  the  said  party  of  the  second 
part,  his  heirs  and  assigns  forever. 

Provided  Always,  That  if  the  said  party  of  the  first  part,  his 
heirs,  executors  or  administrators,  shall  pay  unto  the  said  party 
of  the  second  part,  his  executors,  administrators,  or  assigns,  the 
sum  of  money  mentioned  in  the  said  promissory  note  herein  men- 
tioned, and  the  interest  thereon,  at  the  time  and  in  the  manner 
mentioned  in  the  said  condition,  then  these  presents,  and  the 
estate  hereby  granted,  shall  cease,  determine  and  be  void. 

And  the  said  party  of  the  first  part  covenants  with  the  party 
of  the  second  part  as  follows: 

First,  that  the  said  Elton  Farmer,  party  of  the  first  part,  will 
pay  the  indebtedness  as  hereinbefore  provided,  and  if  default 
be  made  in  the  payment  of  any  part  thereof,  the  party  of  the 
second  part  shall  have  power  to  sell  the  premises  herein  de- 
scribed, according  to  law. 

Second,  that  the  said  Elton  Farmer,  party  of  the  first  part, 
will  keep  the  buildings  on  the  said  premises  insured  against  loss 
by  fire,  for  the  benefit  of  the  mortgagee. 

Third,  and  it  is  hereby  expressly  agreed,  that  the  whole  of  said 
principal  sum  shall  become  due,  at  the  option  of  the  said  party 
of  the  second  part,  after  default  in  the  payment  of  interest  for 
thirty  days,  or  after  default  in  the  payment  of  any  tax  or  as- 
sessment for  thirty  days  after  notice  and  demand. 

And  that  the  said  party  of  the  first  i)art  will  execute  any  fur- 
ther necessary  assurances  of  title  to  the  mortgaged  premises,  and 
will  forever  warrant  said  title. 

In  Witness  Whereof,  The  said  party  of  the  first  part  has 
hereunto  set  his  hand  and  seal  the  day  and  year  first  above  writ- 
ten. 

In  presence  of Elton  Farmer.  . .  (Seal). 

George  D.  Strange 

(Acknowledgment:  Similar  to  those  already  given.) 

Analysis:  (1)  Name  the  mortgagor;  the  mortg^^ee.  (2) 
What  is  the  effect  of  the  third  paragraph  of  the  mortgage?  Of 
the  fourth?     (3)  How  does  the  "defeasance  clause"  b^in? 


214  APPLIED  BUSINESS  LAW 

("Provided  always,"  etc.)  (4)  What  provision  is  contained  in 
this  clause?  (5)  How  is  the  debt  evidenced?  (6)  May  the 
mortgage  be  assigned?  (7)  What  words  in  the  mortgage  indi- 
cate this? 

Directions:  Make  a  copy  of  the  foregoing  form  of  mortgage 
deed.  After  it  has  been  approved,  mark  and  file  it  with  your 
other  land  papers. 

EXERCISE  LXIII.  Using  fictitious  names,  make  a  form  of 
mortgage  adapted  to  your  own  community.  Write  a  note  as 
additional  evidence  of  the  debt  which  is  secured  by  the  mort- 
gage. After  your  forms  have  been  approved,  mark  them  prop- 
erly and  file  with  your  other  land  papers. 

263.  Assignment  of  mortgage.  The  language  of  the 
mortgage  usually  provides  that  the  obligation  may  be 
assigned.  The  assignment  or  transfer  of  the  rights  of  the 
mortgagee  to  another  person  may  be  effected  by  an  instru- 
ment in  writing,  usually  under  seal,  or  where  the  debt  is 
evidenced  by  a  note  or  a  bond  which  is  secured  by  the  mort- 
gage, the  transfer  of  the  note  or  bond  will  operate  as  an  as- 
signment of  the  mortgage  to  the  holder  of  the  note  or  bond. 

EXERCISE  LXIV 

264.  Material  facts.  Richard  A.  Rex  has  arranged 
to  assign  the  mortgage  upon  the  land  of  Elton  Farmer  to 
John  Dale,  in  consideration  of  one  dollar  in  hand  paid 
and  other  good  and  valuable  considerations.  The  assign- 
ment is  of  date  May  11,  1919. 

ASSIGNMENT  OF  MORTGAGE 

This  Instrument,  Made  the  twelfth  day  of  May,  1919,  be- 
tween  Richard   A.    Rex of  Imperial,  Imperial 

County,  CaUf ornia,  of  the  first  part,  and John  Dale 

of  the  same  place  of,  the  second  part, 


CONTRACTS  CONCERNING  LAND   ^15 

WITNESSETH,  That  the  party  of  the  first  part,  for  one  dollar 
in  hand  paid  to  him  by  the  party  of  the  second  part,  the  receipt 
whereof  is  hereby  acknowledged,  and  for  other  and  further  good 
and  valuable  considerations  to  him  in  hand  paid  by  the  party  of 
the  second  part,  Has  Sold,  Assigned,  transferred,  and  conveyed, 
and  does  hereby  sell,  assign,  transfer  and  convey  to  the  party  of 
the  second  part  a  certain  mortgage  bearing  date  the  tenth  day 
of  May,  1919,  and  executed  by  Elton  Farmer  to  Richard  A.  Rex 
to  secure  the  payment  of  the  sum  of  Six  Thousand  Dollars  and 
interest  thereon  from  the  date  thereof,  at  the  rate  of  six  per  cent 
per  annum  until  paid,  recorded  in  the  County  Recorder's  Office 
of  the  County  of  Imperial,  State  of  California,  in  Liber  sixty- 
three  of  Mortgages,  at  page  eighty,  on  the  tenth  day  of  May, 
1919,  at  11  a.  m.,  together  with  the  note  accompanying  said 
mortgage  and  therein  referred  to,  and  all  sums  of  money  due  and 
to  become  due  thereon.  And  the  party  of  the  first  part  hereby 
covenants  that  there  is  at  this  time  a  full  and  complete  sub- 
sisting obligation  for  the  entire  amount  of  the  note  and  interest 
secured  by  the  mortgage  hereby  assigned  and  that  he  has  done 
no  act  to  impair  the  validity  of  the  obligation. 

In  Witness  Whereof,  The  said  party  of  the  first  part  has 
hereunto  set  his  hand  and  seal  the  day  and  year  first  above  writ- 
ten. 

In  the  presence  of  Richard  A,  Rex (Seal). 

John  H.  Smith 

(This  assignment  should  be  acknowledged  and  recorded  in  the 
same  manner  as  a  mortgage.) 

Analysis:  (1)  Name  the  assignor;  the  assignee.  (2)  Point 
out  the  essentials  of  a  valid  contract  in  the  above  assignment. 
(3)  Why  should  the  assignment  be  acknowledged  and  recorded? 

Directions:  Make  a  copy  of  the  above  assignment.  Include 
an  acknowledgment,  mark  and  file. 

EXERCISE  LXV.  Using  the  facts  and  materials  in  Exercise 
LXIII,  make  a  form  of  assignment  of  the  mortgage  as  drafted 
in  that  exercise. 

After  your  work  has  been  approved,  number  it  Exercise  LXV, 
^dfile. 


210  APPLIED  BUSINESS  LAW 

266.  Discharge  of  mortgage.  When  the  debt  which 
is  secured  by  the  mortgage  is  paid,  or  when  there  has  been 
a  lawful  tender  of  payment,  or  the  obligation  of  the  mort- 
gage is  otherwise  performed,  the  mortgage  is  at  once  dis- 
charged. Usually  the  discharge  of  a  mortgage  must  be 
for  a  valuable  consideration,  or  by  a  release  in  writing 
which  in  most  states  must  be  under  seal.  The  release 
should  be  properly  acknowledged  and  filed  for  record  in 
the  recorder's  office.  It  is  frequently  provided  by  statute 
that  a  mortgage  may  be  released  by  merely  making  mar- 
ginal notations  on  the  mortgage  as  recorded  in  the  mort- 
gate  book  of  the  recorder's  office,  but  such  notation  must 
be  attested  by  the  recorder.  A  fraudulent  notation  on  the 
records  is  a  criminal  act  for  which  the'  guilty  party  is 
liable  to  fine  and  imprisonment  for  such  act. 

EXERCISE  LXVI 

266.  Material  facts.  On  July  3,  1919,  John  Dale 
received  pajmaent  in  full  for  the  amount  of  the  note  and 
interest  due  thereon  from  Elton  Farmer.  In  considera- 
tion of  this  payment.  Dale  gives  an  unconditional  release 
of  the  mortgage  which  was  given  to  secure  the  payment  of 
the  loan  of  $6000. 

RELEASE  OF  MORTGAGE 

State  of  California 

City  and  County  of  Imperial 

I,  John  Dale,  of  the  City  of  Imperial,  County  of  Im- 
perial, and  State  of  California,  Assignee  of  the  Mortgage 
hereinafter  described,  Do  Hereby  Certify,  That  a  certain 


CONTRACTS  CONCERNING  LAND        217 

Deed  of  Mortgage,  bearing  date  of  tenth  day  of  May, 
1919,  made  and  executed  by  Elton  Farmer  to  Richard  A.  Rex, 
and  thereafter  on  or  about  the  twelfth  day  of  May,  1919,  by  a 
instrument  in  writing  duly  assigned  to  me  and  recorded  in  the 
Office  of  the  County  Recorder  of  Imperial  County,  California, 
in  Liber  sixty-three  of  Mortgages,  at  page  ninety,  on  the  12th 

day  of  May,  1919,  at  11  a.  m., Is  Paid and  I 

hereby  consent  that  the  same  be  discharged  of  record. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal 
this  third  day  of  July,  1919. 
In  presence  ol 
Richard  A.  Rex John  Dale (Seal). 

(The  above  Release  must  be  properly  acknowledged  so  it  may 
be  recorded  in  the  office  of  the  county  recorder.) 

Directions:  Examine  the  above  form  of  release  carefully  to 
see  that  the  names  of  the  parties,  dates,  and  other  essentials  are 
properly  stated. 

If  these  facts  are  found  to  be  correct,  make  a  copy  of  the  from. 
When  your  work  has  been  approved,  mark  it  Exercise  LXVI,  and 
file. 

EXERCISE  LXVII.  Using  the  facts  and  materials  of  Exer- 
cise LXV,  draft  a  form  of  release  for  the  mortgage  given  in  Exer- 
cise LXIII.  After  this  form  of  release  has  been  approved,  num- 
ber it  and  file. 

EXERCISE  LXVIII 

267.  Lease  of  real  property.  Where  one  lets  the  use 
of  real  property  to  another  for  an  agreed  term  or  at  will, 
the  contract  is  known  as  a  lease.  The  owner  of  such  prop- 
erty is  the  landlord,  or  lessor,  and  the  person  to  whom  it 
is  let  is  the  tenant,  or  lessee.  The  compensation  paid  for 
the  use  of  real  property  is  known  as  rent.  A  lease  for  one 
year  or  longer  should  be  in  writing,  and  if  for  three  yearS; 


S18  AI^PLIED  BUSINESS  LAW 

or  more,  it  should  be  acknowledged  and  recorded  in  the 
county  recorder's  office. 

268.  Material  facts.  On  May  1,  1919,  Elton  Farmer 
of  Imperial,  California,  makes  an  agreement  with  Hiram 
Hoe,  of  the  same  place,  by  the  terms  of  which  he  is  to  let 
his  forty-acre  farm  to  Hoe  for  a  term  of  four  years,  at  an 
annual  rental  of  forty  dollars  an  acre,  the  tenant  to  pay 
all  water  assessments  and  keep  the  ditches  in  good  repair, 
to  farm  the  land  in  a  modern  and  approved  manner,  keep 
the  buildings  insured,  and  pay  the  rental  quarterly  in 
advance. 

FARM  LEASE 

Tms  Agreement,  Made  this  the  first  day  of  May,  1919,  be- 
tween Elton  Farmer,  of  Imperial  County,  California,  of  the  first 
part,  and  Hiram  Hoe,  of  the  same  place,  of  the  second  part, 

WITNESSETH,  That  in  consideration  of  the  rents  and  covenants 
hereinafter  expressed,  the  said  party  of  the  first  part  has 
Demised  and  Leased,  and  does  hereby  demise  and  lease  to 
the  said  party  of  the  second  part,  the  following  described  prem- 
ises: 

All  that  Tract  or  Parcel  of  Land,  Situate  in  the  County 
of  Imperial,  and  State  of  California,  and  more  particularly  de- 
scribed as  the  Southeast  quarter  of  the  Southeast  quarter  of  Sec- 
tion seven,  Township  fifteen  South,  S.  B.  M.,  Range  fifteen  East, 
containing  forty  acres,  more  or  less,  Together  with  Ten  Shares 
of  Stock  in  the  Imperial  Irrigation  Company,  as  a  water  right 
for  the  said  land,  with  the  privileges  and  appurtenances,  and 
all  the  estates  and  rights  of  the  party  of  the  first  part 
in  and  to  the  said  premises,  for  and  during  the  term  of  Four 
Years  from  the  first  day  of  May,  1919,  which  term  will  end  the 
30th  day  of  April,  1923.  And  the  said  party  of  the  second  part 
covenants  that  he  will  pay  to  the  party  of  the  first  part,  for  the 
use  of  said  premises,  the  annual  rental  of  forty  dollars  an  acre  for 
the  forty  acres,  payable  quarterly  in  advance  on  the  first 


CONTRACTS  CONCERNING  LAND        219 

day  of  May,  August,  November,  and  February  of  each  year  dur- 
ing the  continuance  of  this  lease. 

And,  Provided  said  party  of  the  second  part  shall  fail  to  pay 
said  rent  or  any  part  thereof  when  it  becomes  due,  it  is  agreed 
that  said  party  of  the  first  part  may  sue  for  the  same,  or  re-en- 
ter said  premises,  or  resort  to  any  other  legal  remedy  therefor. 

The  party  of  the  first  part  agrees  to  pay  all  taxes  to  be  as- 
sessed against  the  said  lands  during  said  term.  Except  taxes  and 
assessments  levied  against  and  upon  the  water  rights  in  the  Im- 
perial Irrigation  Company  which  latter  assessments  and  taxes 
the  party  of  the  second  part  agrees  to  pay. 

The  party  of  the  second  part  covenants  that  at  the  expiration 
of  said  term  he  will  surrender  up  said  premises  to  the  party  of 
the  first  part  or  to  his  lawful  successors  in  as  good  condition  as 
now,  necessary  wear  and  damage  by  the  elements,  earth- 
quakes, and  other  inevitable  accidents  to  be  excepted. 

In  Witness  Whereof  the  said  parties  have  hereunto  set  their 
respective  hands  and  seals  the  day  and  year  first  above  written. 
Made  and  signed  in  duplicate 

in  the  presence  of 

Richard  A.  Rex Elton  Farmer (Seal). 

Hiram  Hoe (Seal). 

(The  lease  should  be  acknowledged  and  recorded ) 

Analysis:  (1)  Point  out  the  essentials  of  a  valid  contract  in 
the  above  form  of  lease.  (2)  What  is  the  initial  agreement? 
The  counter  agreement?  (3)  Is  this  contract  required  to  be 
in  writing?    (4)  Should  it  be  recorded?    Why? 

Directions:  Study  the  above  form  of  lease  and  recast  each 
paragraph  with  a  view  to  expressing  the  intention  and  under- 
standing of  each  party  with  greater  clearness  and  brevity.  Re- 
write the  entire  lease,  and  when  your  work  has  been  approved, 
number  it  and  file. 

EXERCISE  LXIX.  Using  the  facts  given  in  Exercise  LIV, 
draft  a  form  of  lease  for  the  land  for  a  term  of  five  years. 

After  your  lease  has  been  approved,  number  j^  find  file  witl^ 
your  pther  land  papers, 


220  APPLIED  BUSINESS  LAW 


EXERCISE  LXX 

269.  Assignment  of  lease.  A  tenant  may  assign  his 
leasehold  or  sublet  any  part  of  it  unless  restrained  by  the 
terms  of  the  lease.  If  he  dispose  of  the  whole  premises 
for  the  whole  term  of  lease,  this  is  called  an  assignment  of 
the  lease;  but  if  he  dispose  of  only  part  of  the  premises  or 
all  the  premises  for  only  part  of  the  time,  this  is  a  sublet- 
ting. In  the  case  of  an  assignment,  if  the  landlord  consents 
to  it  or  even  accepts  rent  from  the  assignee,  the  original 
tenant  is  freed  from  all  liabiUty  for  the  payment  of  the  rent. 
But  if  the  landlord  does  not  thus  assent,  he  may  hold  the 
original  tenant  liable  for  the  payment  of  rent  even  though 
he  cease  to  have  any  estate  or  interest  in  the  leasehold. 

270.  Material  facts.  Hiram  Hoe,  tenant  of  Elton  Far- 
mer, as  indicated  in  Exercise  LXVII,  has  contracted  to 
transfer  his  lease  to  Loftus  Wilt  for  an  agreed  considera- 
tion, June  10,  1919. 

ASSIGNMENT  OF  LEASE 

Know  all  Men  by  these  Presents,  That  I,  Hiram  Hoe,  of 
Imperial  County,  California,  party  of  the  first  part,  in  consid- 
eration of  One  Dollar  to  me  in  hand  paid  by  Loftus  Wilt, 
of  the  same  place,  party  of  the  second  part,  the  receipt 
whereof  is  hereby  acknowledged,  and  for  other  and  further  con- 
siderations, have  this  day  Granted,  Bargained,  Sold,  As- 
signed, AND  Transferred,  and  by  these  presents  do  grant,  bar- 
gain, sell,  assign,  and  transfer  unto  the  said  Loftus  Wilt,  party  of 
the  second  part,  a  certain  contract  of  lease  bearing  date  of  the 
tenth  day  of  May,  1919,  and  made  by  Elton  Farmer  of  Imperial 
County,  California,  to  Hiram  Hoe,  of  the  same  place,  for  a  term 
of  Four  Years  from  the  first  day  of  May,  1919,  and  duly  ac- 


CONTRACTS  CONCERNING  LAND        221 

knowledged  and  recorded  in  the  Office  of  the  County  Recorder 
of  Imperial  County,  California,  in  Liber  73,  at  page  125,  Whereby 
the  said  Elton  Farmer  granted  and  leased  to  the  said  Hiram  Hoe, 
the  party  of  the  first  part  hereto.  All  that  Tractt  or  Parcel 
OF  Land  situate  in  the  County  of  Imperial,  California,  located 
and  described  as  the  Southeast  quarter  of  the  Southeast  quarter 
of  Section  seven.  Township  fifteen.  South,  S.  B.  M.,  Range  fif- 
teen East,  containing  forty  acres,  more  or  less.  Together  With 
Ten  Shares  of  Stock  in  the  Imperial  Irrigation  Company,  as  a 
water  right  for  the  said  land,  with  the  privileges  and  appurte- 
nances and  all  the  estate  and  rights  of  the  said  Elton  Far- 
mer, for  and  during  the  said  term  of  four  years. 

To  Have  and  to  Hold  the  same  unto  the  said  party  of  the 
second  part,  his  heirs,  and  assigns  for  his  or  her  own  use  during 
the  remainder  of  the  said  term  of  leasing,  subject  only  to  the  pro- 
visions and  covenants  in  the  original  contract  of  leasing,  and  that 
the  party  of  the  second  part  assumes  all  such  obligations  and 
undertakings  as  set  forth  in  the  original  lease. 

In  Witness  Whereof,  We  have  hereto  set  our  respective 
hands  and  seals  this  the  tenth  day  of  June,  1919. 

In  the  presence  of  Hiram  Hoe (Seal). 

John  W.  Rockfqrd Loftus  Wilt (Seal). 

Analysis:  (1)  Examine  the  above  form  of  assignment  of 
lease  with  a  view  to  finding  all  the  essential  elements  of  a  valid 
contract.  (2)  Name  the  assignor;  the  assignee.  (3)  Is  this 
agreement  binding  on  the  landlord?  (4)  To  whom  may  he  look 
for  payment  of  his  rental? 

'  Directions:  Find  each  of  the  parts  of  an  ordinary  contract 
in  the  above  form:  Heading,  initial  agreement,  counter  agree- 
ment, further  agreements,  and  conclusion,  with  the  subscrip- 
tion. Rearrange  each  part  with  a  view  to  expressing  the  dif- 
ferent paragraphs  with  greater  clearness  and  brevity. 

Rewrite  the  entire  contract,  and  when  it  is  approved,  number 
and  file. 


GROUP  V 
MISCELLANEOUS    FORMS 

271.  Authority  of  agent.  An  agent  is  one  who  repre- 
sents another,  called  the  principal,  in  the  formation  of 
contracts.  Hence,  it  is  always  advisable  to  have  the 
authority  of  the  agent  in  some  form  of  writing,  unless  he 
is  to  act  in  the  immediate  presence  of  the  principal.  This 
written  authority  may  be  general  or  special,  or  in  the  form 
of  a  power  of  attorney  or  of  a  proxy. 

272.  General  agency.  A  general  agent  is  one  who 
has  authority  to  act  generally  for  his  principal  in  the  trans- 
action of  a  business  of  a  particular  kind  or  at  a  particular 
place.  He  is  not  limited  to  the  performance  of  specific 
acts,  but  is  permitted  a  reasonable  discretion  in  the  trans- 
action of  his  principal's  business  (see  section  11,  Part  I). 

EXERCISE  LXXI 

273.  Material  facts.  January  17,  1919,  John  Doe  is 
appointed  to  act  as  manager  of  the  local  general  merchan- 
dise store  of  the  Colorado  Supply  Company  at  Del  Agua, 
Colorado. 

AUTHORITY  OF  GENERAL  AGENT 

Colorado  Supply  Company 
Office  of  the  President 

Denver,  Colorado, 
January  17,  1919. 
To  Whom  This  may  Concern: 

Be  it  known  by  this  writing  that  John  Doe,  of  Trinidad,  Las 
Animas  County,  Colorado,  has  been  selected  and  appointed  to 
act  as  Manager  of  our  general  merchandise  store  at  Del  Agua, 

222 


MISCELLANEOUS  FORMS  223 

Las  Animas  County,  Colorado,  and  by  this  writing  he  is  given 
full  and  complete  authority  to  transact  and  conduct  the  business 
pertaining  to  said  general  merchandise  store  in  the  regular  and 
ordinary  course  of  business  in  buying  and  selling  of  goods  and 
merchandise.  He  has  no  authority,  to  issue  notes  or  accept 
drafts  binding  upon  this  Company. 

The  Colorado  Supply  Company, 
By  Thomas  W.  Bowen, 

PRESmENT  and  GENERAL  MANAGER. 

Geo.  a.  Purden 

Secretary. 
Analysis:  (1)  What  authority  is  given  by  the  above  writing? 

(2)  What  restrictions  are  imposed  on  the  authority  of  the  agent? 

(3)  Under  this  authority  will  Doe  have  a  right  to  hire  clerks  and 
salesmen?  (4)  Doe  purchases  from  X  a  horse  to  be  used  for  de- 
livery purposes,  paying  $200  for  it.  May  the  Company  repudiate 
this  contract  and  refuse  to  pay  for  the  horse?  (5)  Doe  hires  car- 
penters and  has  repairs  made  on  the  store  building;  the 
repairs  were  needed.  Is  the  Company  bound  by  this  contract? 
(6)  He  hires  carpenters  and  has  a  considerable  addition  built 
to  the  store.  Is  the  Company  bound  by  this  contract?  (7)  He 
adds  some  new  departments  to  the  business  of  the  store,  such  as 
a  drug  department,  music  department,  and  the  like.  Is  the  Com- 
pany bound  by  his  contracts  for  these? 

Directions:  Make  a  copy  of  the  above  form,  and  at  the  same 
time  make  any  changes  or  additions  necessary  to  a  clear  state- 
ment of  the  agent's  authority.  After  your  writing  has  been 
approved,  number  it  and  file. 

EXERCISE  LXXII.  Upon  somewhat  similar  facts,  and  using 
fictitious  names,  write  a  form  of  general  agency.  When  your 
writing  has  been  approved,  number  and  file. 

EXERCISE  LXXIII 

274.  Special  agency.  A  special  agent  is  one  who  is 
authorized  to  act  in  a  single  trans€|,ction  or  in  relation  to 
0,  specific  matter, 


224  APPLIED  BUSINESS  LAW 

275.  Material  facts.  John  Dale  has  appointed  Rich- 
ard Rex  as  his  agent  to  sell  a  particular  tract  of  land  be- 
longmg  to  Dale,  May  3,  1919. 

AUTHORITY  OF  SPECIAL  AGENT 

Appomattox,  Virginia, 
May  3,  1919. 
To  Whom  This  May  Come: 

Be  it  Known  by  This  Writing  That  Richard  Rex  of  Rich- 
mond, Virginia,  has  been  selected  and  appointed  by  me  to  act 
as  my  agent  for  the  purpose  of  negotiating  and  making  a  sale  of 
my  certain  property  or  tract  of  land  known  as  "Homeacre,"  sit- 
uate near  Hollywood  Post  Office,  Appomattox  County,  in  the 
State  of  Virginia. 

This  tract  of  land  contains  two  hundred  and  eighty-four  acres 
and  must  be  sold  intact,  and  in  no  event  shall  the  sales  price 
of  said  premises  be  for  a  sum  less  than  $30  an  acre  and  the  said 
Richard  Rex  shall  have  no  authority  to  accept  or  receive  any 
part  of  the  purchase  price  for  the  said  property. 

The  right  and  authority  of  the  said  Richard  Rex  to  act  as  my 
agent  in  and  for  the  sale  of  the  above  named  property  shall  ter- 
minate and  expire  at  the  end  of  one  month  from  the  date  of  this 
writing,  unless  otherwise  sooner  terminated  for  cause. 

John  Dale 

Analysis:  (1)  What  authority  is  conferred  by  the  above 
writing?  (2)  How  may  this  authority  be  terminated?  (3)  What 
limitations  of  authority  are  imposed  on  the  agent? 

Directions:  Examine  the  above  form,  then  rearrange  each 
paragraph  with  a  view  to  greater  brevity  and  clarity  of  state- 
ment. Rewrite  the  entire  form;  after  your  writing  has  been  ap- 
proved, number  and  file. 

EXERCISE  LXXIV.  Using  similar  or  other  facts  suited  to 
your  own  community,  draft  an  authority  for  a  special  agent. 
When  your  work  has  been  approved,  number  it  Exercise  LXXIV, 
^nd  file, 


MISCELLANEOUS  FORMS  225 


EXERCISE    LXXV 

276.  Power  of  attorney.  A  power  of  attorney  is  a 
writing  under  seal  which  authorizes  an  agent  to  perform 
some  particular  duty.  The  agent  so  appointed  is  known 
as  an  "attorney  in  fact,"  and  his  authority  is  limited  to 
the  particular  duty  specified  in  the  writing.  In  other 
words,  a  power  of  attorney  is  simply  a  written  authority 
of  an  agent,  signed  and  sealed  by  the  principal.  This  form 
of  authority  is  required  only  where  the  agent  may  have 
to  execute  written  instruments  under  seal,  such  as  deeds 
conveying  title  to  real  property  (see  section  12,  Part  I). 

277.  Material  facts.  John  Doe  appoints  John  Smith, 
by  a  writing  under  seal,  to  act  as  his  agent  for  the  sale  and 
transfer  of  title  to  "Oldacres  Plantation,"  located  at  Leon 
Springs,  Florida.    The  power  is  of  a  general  character. 

POWER  OF  ATTORNEY 

Know  All  Men  by  These  Presents,  That  I John 

Doe of  the  County  of  Leon,  State  of  Florida,  have  made, 

constituted,  and  appointed,  and  by  These  Presents  do  make, 

constitute,  and  appoint John  Smith of  the  City 

of  Tallahassee,  and  same  county  and  state,  my  true  and  lawful 
attorney  for  me  and  in  my  name,  place  and  stead,  to  grant,  bar- 
gain, and  sell  all  such  lands,  tenements,  and  hereditaments  what- 
soever, situated  in  the  County  of  Leon,  and  State  of  Florida, 
whereof  I  now  am  by  any  ways  or  means  however,  entitled  to  or 
interested  in,  either  in  severalty  or  jointly,  or  in  common  with 
any  other  person  or  persons,  or  any  part,  share,  or  proportion 
thereof,  and  all  such  right,  title,  interest,  claim  and  demand,  both 
in  law  and  in  equity,  as  I  may  have  in  the  same,  for  such  sum  and 
price  and  on  such  terms  as  to  him  shall  seem  meet,  Giving  and 
Obaj^TINQ  unto  my  said  attorney  full  power  and  authority  to  do 


226  APPLIED   BUSINESS  LAW 

and  perform  all  and  every  act  or  thing  whatsoever  requisite  and 
necessary  to  be  done  in  and  about  the  premises,  as  fully  to  all 
intents  and  purposes  as  I  might  or  could  do  if,  personally  present, 
with  full  power  of  substitution  and  revocation,  hereby  ratifying 
and  confirming  all  that  my  said  attorney  or  his  substitute  shall 
lawfully  do  or  cause  to  be  done  by  virtue  hereof. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal 
this  the  tenth  day  of  March,  1919. 

In   presence   of 

Richard  Roe John  Doe  (Seal). 

(The  Power  of  Attorney  must  be  acknowledged  and  recorded 
as  in  the  case  of  a  deed,  otherwise  a  deed  made  under  such  author- 
ity would  not  be  a  valid  conveyance  of  title  to  real  property ) 

Analysis:  (1)  In  the  preceding  power  of  attorney,  why  is  the 
power  general  instead  of  being  a  special  or  limited  authority? 
(The  principal  owns  only  one  tract  of  land  in  the  county  named.) 
(2)  What  limitation  would  be  necessary  if  Doe  owned  other 
tracts  of  land  which  he  did  not  wish  to  dispose  of?  (3)  What 
authority  is  given  the  agent  in  this  case?  (4)  Are  there  any  re- 
strictions imposed?  (5)  May  the  agent  sell  lands  belonging  to 
the  principal  which  are  located  in  Madison,  an  adjoining  County? 
(6)  Must  he  sell  for  cash,  or  may  he  sell  on  reasonable  terms? 

Directions:  Make  a  copy  of  the  above  power  of  attorney. 
When  your  work  has  been  approved,  number  the  exercise  and 
file. 

EXERCISE  LXXVI.  Using  fictitious  names,  make  out  a 
form  of  power  of  attorney  authorizing  the  sale  of  land  in  your 
neighborhood.  After  your  draft  has  been  approved,  number  and 
file. 

EXERCISE  LXXVII.  Write  a  power  of  attorney  authoriz- 
ing John  Dale  to  settle  up  and  adjust  your  business  and  dispose 
of  all  your  property  located  in  a  designated  city,  county,  and 
state.   After  this  authority  has  been  approved,  number  and  file, 


MISCELLANEOUS  FORMS  m 

EXERCISE  LXXIX 

278.  Form  of  proxy.  A  proxy  is  a  writing  which 
authorizes  one  to  act  as  the  agent  or  representative  of 
another,  as,  for  example,  the  voting  of  shares  of  stock  at 
a  stockholders'  meeting  of  a  corporation. 

Sometimes  the  person  authorized  to  act  is  spoken  of  as 
a  "proxy,"  but  the  better  usage  is  to  designate  the  writing 
as  a  proxy  and  the  person  authorized  to  act  as  an  agent 
or  attorney. 

Where  stockholders  cannot  or  do  not  personally  attend 
the  stockholders'  meetings,  they  may,  by  giving  a  proxy 
which  is  a  writing  somewhat  in  the  nature  of  power  of 
attorney,  authorize  or  direct  another  to  vote  in  their 
stead.  No  particular  form  is  required  for  this  writing,  it 
being  sufficient  if  it  clearly  sets  out  an  authority  to  act  for 
the  holder  of  the  shares  of  stock  designated. 

279.  Material  facts.  Jack  Gibson,  of  Peoria,  Illinois, 
is  the  owner  of  shares  of  stock  in  the  Last  Chance  Irriga- 
tion Company  of  St.  Vrain,  Weld  County,  Colorado.  He 
is  unable  to  be  present  at  the  annual  stockholders'  meet- 
ing and  he  authorizes  Bruce  B.  Lockard,  of  Longmont, 
Colorado,  to  act  as  his  agent  at  such  meeting. 

FORM  OF  PROXY 

PROXY  FOR  ANNUAL  STOCKHOLDERS'  MEETING 

To  be  Held  at  St.  Vrain,  Colo.,  April  21, 1919. 

KInow  all  Men  by  These  Presents:  That  I,  the  under- 
signed, being  the  lawful  owner  of  Ten  shares  of  Capital  Stock  of 
the  Last  Chance  Irrigation  Company,  a  corporation  organized 
under  the  laws  of  the  State  of  Colorado,  do  hereby  constitute  and 


228  APPLIED  BUSINESS  LAW 

appoint Bruce  B.  Lockard my  true  and  law- 
ful attorney  in  fact,  or  proxy,  in  my  name,  place  and  stead,  to 
Vote  upon  the  stock  owned  by  me  and  standing  in  my  name,  as 
my  proxy,  at  the  Annual  Meeting  of  the  Stockholders  of  the  said 
Company,  to  be  held  at  the  office  of  the  President  of  the  Com- 
pany, at  St.  Vrain,  Weld  County,  Colorado,  on  the  twenty-first 
day  of  April,  1919,  and  on  such  other  day  or  days  as  the  meeting 
may  be  thereafter  held  by  adjournment  or  otherwise,  according 
to  the  number  of  votes  I  am  now  or  may  then  be  entitled  to  cast, 
hereby  granting  to  my  said  attorney,  or  proxy,  full  power  and 
authority  to  act  for  me  and  in  my  name  at  the  said  meeting  or 
meetings,  in  voting  for  the  directors  of  the  said  Company  or 
otherwise,  and  in  the  transaction  of  such  other  business  as  may 
come  before  the  meeting  legally,  as  fully  as  I  could  do  if  person- 
ally present,  with  full  power  of  substitution  and  revocation, 
hereby  ratifying  and  confirming  all  that  my  said  attorney  or  his 
substitute  may  do  in  my  place,  name,  and  stead. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal 
the  fourteenth  day  of  April,  1919. 
In  presence  of 
John  Wendt Jack  Gibson  . .  (Seal). 

Directions:  Analyze  the  above  form  carefully,  then  re- 
write it  carefully  with  a  view  to  brevity. 
After  it  is  approved,  number  and  file. 

EXERCISE  LXXX.  Following  the  above  model,  write  out 
a  proxy  authorizing  a  friend  to  represent  you  at  a  stockholders* 
meeting  of  some  corporation  in  your  community. 

When  your  work  has  been  approved,  number  it  Exercise 
LXXX,  and  file. 

EXERCISE  LXXXI 

280.  Bill  of  sale.  A  bill  of  sale  is  a  writing  by  the 
terms  of  which  the  seller  transfers  to  the  buyer  title  to 
specific  goods  described  in  the  bill  of  sale.    In  addition  to 


MISCELLANEOUS  FORMS  229 

transferring  title  to  the  buyer  it  may  also  warrant  the 
title  to  the  buyer.  Bills  of  sale  apply  to  personal  property, 
that  is  to  movable  property  or  goods,  and  correspond  to 
deeds  of  conveyance  to  land,  but  as  a  rule  they  do  not 
have  to  be  under  seal  or  recorded  in  a  public  office  of  rec- 
ord as  in  the  case  of  deeds  of  conveyance. 

281.  Material  facts.  John  Dale  has  sold  a  typewriter 
to  Mary  Stiles  for  the  sum  of  fifty  dollars,  delivery  and 
payment  to  be  concurrent  on  the  7th  day  of  March,  1919. 
Miss  Stiles  asks  for  a  bill  of  sale  for  the  machine. 

BILL  OF  SALE 

Know  all  Men  by  these  Presents,  That  I,  John  Dale,  of 
Chicago,  Cook  County,  Illinois,  have  Bargained  and  Sold,  and 

by  these  presents  do  hereby  grant  and  convey  unto 

Mary  Stiles of  Athens,  Athens  County,  Ohio,  her  per- 
sonal representatives  and  assigns,  one  L.  C.  Smith  &  Bros.  Type- 
writer, No.  5,  Serial  Number  136,519-5,  for  and  in  consideration 
of  the  sum  of  Fifty  Dollars  lawful  money  of  the  United  States 
of  America,  to  me  in  hand  paid  by  the  said  Mary  Stiles,  the  re- 
ceipt whereof  is  hereby  acknowledged. 

To  Have  and  to  Hold  the  said  typewriter  unto  the  said  Mary 
Stiles,  her  personal  representatives  and  assigns  forever. 

And  I  Hereby  Covenant  to  and  with  the  said  Mary  Stiles 
that  I  am  the  true  and  lawful  owner  of  the  said  Typewriting 
Machine  described  herein  and  I  have  good  title  to  the  same  and 
a  right  to  sell  and  transfer  the  said  title  and  property  in  the  same, 
and  I  will  defend  the  same  against  any  person  or  persons  whom- 
soever claiming  the  same  through  any  act  of  mine  or  want  of 
title  in  me. 

In  WrrNESs  Whereof,  I  have  hereunto  set  my  hand  and  seal 
this  the  seventh  day  of  March,  1919. 
Witnessed  by 
LoTTA  Miles.  John  Dale (Seal). 


230  APPLIED  BUSINESS  LAW 

Directions:  (1)  State  the  purpose  of  the  bill  of  sale.  Does 
it  warrant  the  quality  or  character  of  the  article  sold,  as  new,  re- 
built, or  second-hand,  or  in  good  repair?  What  does  it  warrant? 
(2)  Make  a  copy  of  the  above  form,  number  and  file. 

SHORT  FORM  OF  BILL  OF  SALE 

Chicago,  Illinois, 

March  7,  1919 

To  Whom  This  may  Concern: 

I  have  this  day  sold  my  L.  C.  Smith  &  Bros.  Typewriter,  No. 
6,  Serial  Number,  136,519-5,  to  Miss  Mary  Stiles,  of  Athens, 
Ohio,  for  the  sum  of  Fifty  Dollars^  and  I  hereby  convey  and  war- 
rant title  to  the  same. 

John   Dale (Seal) . 

EXERCISE  LXXXII.  Write  a  bill  of  sale  for  some  article 
which  you  have  sold. 

After  your  form  has  been  approved,  number  it  and  file. 

Exercise  LXXXIII.  Write  a  bill  of  sale  in  the  short  form 
for  the  same  article. 

When  your  work  has  been  approved,  number  it  Exercise 
LXXXIII,  and  file  with  your  other  forms. 

EXERCISE  LXXXIV 

282.  Notice  to  stop  goods  in  transit.  Where  one  sells 
goods  and  ships  them  by  a  common  carrier  to  the  buyer, 
ahd  after  such  shipment  but  while  the  goods  are  still  in 
transit  he  learns  of  the  insolvency  of  the  buyer,  he  may 
give  notice  to  the  carrier  to  hold  the  goods  and  not  deliver 
them  to  the  buyer. 

After  such  notice,  the  carrier  must  hold  the  goods  sub- 
ject to  the  order  of  the  seller,  and  if  he  fail  to  do  this  he 
will  be  answerable  to  the  seller  for  the  value  of  the  goods. 
This  right  t/Q  §top  goods  in  transit  applies  gnly  to  m  ua- 


MISCELLANEOUS  FORMS  ^t 

paid  seller  in  case  the  buyer  becomes  insolvent,  or  the 
seller  learns  of  the  insolvency,  after  the  sale  and  ship- 
ment of  the  goods. 

Three  conditions  must  exist  to  give  rise  to  a  right  to 
stop  goods  in  transit:  (1)  They  must  be  in  the  hands  of 
an  intermediate  or  third  party  as  a  common  carrier  or  as 
a  warehouseman.  (2)  There  must  be  some  amount  or 
balance  due  on  the  goods.  (3)  The  buyer  must  be  insol- 
vent or  at  least  appear  to  be  in  financial  straits. 

283.  Material  facts.  John  Doe,  of  Imperial,  Cali- 
fornia, shipped  a  car  of  cantaloupes  to  X  &  Company, 
Chicago,  Illinois,  but  after  making  the  shipment  and  be- 
fore delivery  of  the  goods  by  the  carrier,  he  learned  of  the 
insolvency  of  buyers.  He  wired  to  have  the  goods  held 
subject  to  order. 

NOTICE  FOR  STOPPAGE  IN  TRANSIT 

Imperial,    California, 
April  12,  1919. 
Mr.  John  Henry  Mann,  Agent, 
C,  R.  I.  &  Pacific  Ry.  Co., 
Chicago,  111. 

Sir:  You  are  hereby  notified  that  circumstances  have  arisen 
which  give  me  the  right  of  stoppage  in  transit  of  a  car  load  of 
Cantaloupes  delivered  to  the  Southern  Pacific  Railway  Company 
at  Imperial,  California,  April  10,  1919,  and  consigned  to  X  & 
Company,  Chicago,  Illinois,  and  you  are  not  to  deliver  the  same 
to  the  consignee,  but  Hold  the  entire  lot  for  me  and  Subject  to 
MY  Orders. 
JD  Yours  truly, 

John  Doe,  Consignor. 

C 

Analysis:  (1)  Who  are  the  parties  to  the  above  notice?  (2) 
Is  X  &  Company  a  party  to  it?    (3)  Does  the  notice  show  the 


232  APPLIED  BUSINESS  LAW 

three  essential  elements  or  conditions  for  stopping  goods  in 
transit?    (4)  State  these  conditions. 

Directions:  Make  a  copy  of  the  above  form  of  notice,  omit- 
ting the  salutation  and  complimentary  closing.  Does  this  make 
the  notice  more  formal? 

Nmnber  your  form  and  file. 

EXERCISE  LXXXV.  The  above  notice  is  to  be  sent  as  a  tele- 
gram or  "Night  Letter,"  containing  fifty  words.  Rewrite  it, 
using  fifty  words  or  less,  but  do  not  omit  any  essential  of  its 
validity  as  a  full  and  complete  notice. 

When  approved,  number  and  file. 

EXERCISE  LXXXVI 

284.  Notice  of  dishonor  of  business  paper.  When 
a  negotiable  paper  is  dishonored,  either  by  non-accept- 
ance or  non-payment,  notice  of  such  dishonor  must  be 
given  to  all  parties  who  are  conditionally  Uable  on  the 
paper.  If  the  dishonor  takes  place  in  the  state  in  which 
the  paper  was  made  or  drawn,  then  the  holder  may  give 
notice  to  the  other  parties,  but  if  paper  had  its  origin 
outside  of  the  state  then  notice  must  be  given  after  the 
paper  has  been  duly  protested,  and  usually  the  notice  is 
given  by  a  notary  public. 

285.  Material  facts.  John  Stiles  of  Salem,  Oregon, 
is  the  holder  of  a  promissory  note  made  by  Richard  Rex 
of  Fresno,  California,  which  falls  due  on  April  14,  1919. 
The  note  is  dishonored  by  non-payment  when  it  is  pre- 
sented to  the  maker.  It  is  indorsed  by  John  Redmon,  an 
indorser  in  due  course,  and  by  Richard  Roe  as  an  accommo- 
dation indorser,  or  surety,  for  its  payment.  Notice  was 
given  to  the  parties  conditionally  Uable. 


MISCELLANEOm  FORMS  J»S 


NOTICE  OF  DISHONOR 


1SS. 


Salem,  Oregon, 
AprU  17, 1919. 
State  of  Oregon 
County  of  Marion 

Be  it  Known,  by  this  Notice,  that  a  Note  of  $400.00  date 
March  15,  1919,  and  payable  thirty  days  from  date,  at  the 
First  National  Bank  of  Salem,  Oregon,  signed  by  the  maker, 
Richard  Rex  of  Fresno,  California,  and  indorsed  by  you,  was  this 
day  Protested  for  Non-payment  after  due  demand  was  made 
and  payment  refused,  and  the  holder  looks  to  you  for  the  pay- 
ment thereof  with  damages,  interest,  and  costs. 

Done  at  the  request  of  John  Stiles,  the  holder  of  the  said  note. 

Henry  A.  Smith 

Notary  Public  for  Marion  County. 
Addressed  to 
John  Redmon, 

Seattle,  Washington. . . . 

Analysis:  (1)  What  is  the  character  of  the  paper  dishonored? 
(2)  How  was  it  dishonored?    (3)  Who  are  the  parties  to  the 

paper maker,  payee,  holder,  indorsers,  etc.    (4)  Who 

are  the  parties  "primarily  liable"  on  the  note?  (5)  What  de- 
mand is  made  in  the  notice? 

Directions:  Make  a  copy  of  the  above  notice,  omitting  the 
jurat  at  the  beginning  and  substituting  therefor  a  form  of 
salutation  and  complimentary  close. 

When  approved,  number  and  file. 

EXERCISE  LXXXVII.  Select  a  promissory  note  from  your 
file,  and  write  a  notice  of  dishonor. 
Number  and  file. 

EXERCISE  LXXXVIII 

288.  Notice  of  dissolution  of  partnership.  Dissolu- 
tion of  a  partnership  terminates  the  liability  of  a  partner 


2S4  APPLIED  BUSINESS  LAW 

for  contracts  or  obligations  arising  after  the  dissolution, 
provided  due  notice  of  the  dissolution  has  been  given.  To 
persons  who  have  had  no  dealings  with  the  partnership, 
notice  to  the  public  generally  is  sufficient.  But  it  is  gen- 
erally necessary  to  give  written  notice  to  all  persons  who 
have  had  dealings  with  the  firm.  At  any  rate,  reasonable 
diUgence  should  be  exercised  to  have  notice  brought  home 
to  the  attention  of  such  persons.  General  notice  may  be 
given  by  publication  in  a  local  newspaper. 

289.  Material  facts.  Eli  Ford  and  George  Howe, 
doing  business  under  the  firm  name  of  Ford  &  Howe, 
engaged  in  the  general  retail  grocery  business  in  the  City  of 
Denver,  Colorado,  have  mutually  agreed  to  terminate  their 
partnership.  Notice  is  to  be  given  to  the  public  generally 
by  pubUcation  in  a  newspaper,  and  special  written  notice 
is  to  be  given  to  persons  with  whom  the  firm  has  had 
dealings. 

NOTICE  OF  DISSOLUTION 

NOTICE  IS  HEREBY  GIVEN:  That  the  Copartner- 
ship heretofore  existing  between  Eli  Ford  and  George 
Howe,  under  the  firm  name  and  style  of  Ford  &  Howe, 
at  the  City  of  Denver,  Colorado,  is  this  day  dissolved, 
April  18, 1919. 

All  accounts  due  the  partnership  are  to  be  paid  to 
George  Howe  at  the  office  of  the  old  firm,  and  all  claims 
against  the  partnership  should  be  presented  to  him 
for  payment,  at  maturity. 

Eli  Ford 

George  Howe. 

Analysis:  (1)  Does  the  above  notice  sufficiently  identify  the 
partnership  to  render  the  notice  effective?  (2)  Should  the  no- 
tice specify  if  there  were  more  than  one  place  of  business? 


MISCELLANEOUS  FORMS  9SS 

Directions:  Rewrite  the  above  notice  with  a  view  to  clear 
and  exact  statement.   Make  it  complete  but  concise. 

After  it  has  been  approved,  number  and  file. 

EXERCISE  LXXXIX.  Formulate  a  set  of  facts,  or  use  the 
facts  given  in  Exercises  XIX,  XX,  and  XXI,  and  write  out  a 
brief  form  of  notice  of  dissolution  of  the  partnerships. 

After  your  work  has  been  approved,  number  each  and  file 
with  your  partnership  papers. 

EXERCISE  XC 

290.  Special  notice.  To  all  persons  with  whom  a 
partnership  has  had  dealings  special  notice  of  dissolution 
should  be  given.  This  notice  may  be  in  any  form,  but  the 
fact  of  notice  is  essential.  A  written  notice  addressed  and 
mailed  to  such  persons  is  usually  held  to  be  sufficient. 

291.  Material  facts.    As  in  preceding  exercise. 

DISSOLUTION  OF  PARTNERSHIP 

Special  Notice 

Denver,  Colorado, 
April  18,  1919. 
Dear  Sir: 

You  are  hereby  notified  that  the  copartnership  heretofore 
existing  between  Eli  Ford  and  George  Howe,  under  the  firm  name 
and  style  of  Ford  &  Howe,  at  Denver,  Colorado,  is  this  day  Dis- 
solved. 

Accounts  due  the  firm  are  to  be  paid  to  George  Howe  at  the 
office  of  the  old  firm,  and  all  claims  against  the  firm  should  be 
presented  to  him  for  payment  when  due. 

Yours  respectfully. 

Addressed  to  Eli  Ford 

John  Coke George  Howe. 

Cokedale,  Colorado 

Directions:  Write  out  at  least  one  special  form  of  notice 
for  each  partnership  indicated  in  Exercise  LXXXIX.  Number 
and  file. 


INDEX 


INDEX 

(Numbers  refer  to  Sections) 


Abandonment,  67 
Acceptance,  203,  248 

of  offer,  5 

kinds  of,  76 
Acceptor,  248 

Accommodation  indorser,  76  (4) 
Accord,  10 
Acknowledgment,  255 

of  deed,  255,  258 
Actions,  discharge,  10 
Agency,  11-17,  272,  275 

general,  272 

special,  274 
Agent,  6,  12,  13,  14,  272-276 

authority  of,  271 

of  minor,  5 

oral,  271-275 

signatures,  207 

written,  275 
Agreements,  5,  7,  203 

articles  of,  220 

forms  of,  206 

to  incorporate,  224 
Alteration    of    written    instru- 
ment, 8  (6) 
Appointment    of    agent,    6-11, 

272 
Arbitration  and  award,  10 
Articles  of  agreement,  220 
Assignment,  7,  270 

of  lease,  34,  269 

pf  mprtgage,  263 


Attorney  by  proxy,  278 
in  fact,  12,  278 
power  of,  12,  278 

Attorney's  fees,  232 

Auctioneers,  16 

Average,  general,  43 

B 

Baggage,  37 

Bailee,  23-28 

Baihnents,  23-28,  236 

Bank  draft,  240,  246 

Bankruptcy,  8  (6) 

Barter,  51 

Bids,  203 

Bills  of  exchange,  73,  248 
dishonor,  284 
of  lading,  41,  250 
of  sale,  46,  50,  280 

Bonds,  237 

Breach  of  contract,  8 
continuing,  9 

Briefing,  208 

Business,  1 
paper,  79,  284 

Buyer,  insolvent,  282 

By-laws,  93 

By-bidding,  60 


Cancellation  of  contract,  8,  10 
Capacity  to  contract,  6 
Care  of  goodS;  2Q 


240 


INDEX 


warehouseman,  250 
Carriage,  35 

of  messages,  44 

of  persons,  37 

of  property,  39 
Carrier,  36-39 
Cashier's  check,  245 
Certificates  of  deposit,  236 

of  incorporation,  225 
Certified  check,  73,  242 
Charter  of  incorporation,  92,  225 
Checks,  73,  239-242 

kinds  of,  240 
Coke,  contract  for,  217 
Collateral  note,  235 

seciu-ity,  235 
Common  carriers,  36,  250 

of  goods,  250 
Compensation,  13 

of  employee,  19 
Concealment  instrument,  64 
Conditional  sales,  8  (4) 
Consideration,  5  (3),  205 
Consignee,  250 
Consignor,  39 
Contracts,  201-204 

assignment  of,  270 

consideration  in,  205 

counter  offer,  205 

essentials  of,  204 

express,  201 

for  sale  of  goods,  202 

for  sale  of  land,  254 

formal,  sealed,  201 

formation,  203 

in  general,  3-5 

joint,  231 

land,  254 

lease,  267 

memorandum,  202 

negotiable,  227-253 


oral,  201 

parol,  201 

sales,  278 

sealed,  201 

simple,  201 

written,  201 
Conveyances,  86,  254 
Co-partnership,  52-57 

see  partnership 
Corporations,  90-97 
Correspondence,  203 

contracts  by,  203 
Cotton,  contracts  for,  212 
Covenants,  in  deeds,  86,  256 
Credit,  insurance,  70 

D 

Damages,  9 

Date,  of  instruments,  75 

of  paper,  227 

not  essential,  227 
Debt,  barred,  10  (3) 

secured  by  mortgage,  89,  261 
Debtor,  principal,  233 
Deeds,  86,  256 

acknowledgment  of,  256 

covenants  in,  256 

deUvery  of,  256 

essentials  of,  86,  256 

forms  of,  256 

quitclaim,  256 

warranty,  256 
Delegation  of  duties,  15 
Delivery,  47 

by  carrier,  40 
Depositary,  24 
Deposits,  23-28 

certificate  of,  336 
Directors,  of  corporation,  97 
Discharge,  of  contract,  § 


INDEX 


241 


of  obligation,  80 

of  mortgage,  90 

rights  of,  10 
Dishonor,  of  pai)er,  79,  232 

by  non-payment,  284 
Dissolution,  57 

of  partnership,  288 
Drafts,  73,  240,  246 
Drawee,  73,  246 
Drawer,  of  bill,  73 

of  draft,  246 
Duress,  5  (2) 

E 

Elements  of  contract,  4,  204 
Elevators,  252 
Employee,  18 
Employer,  19 
Essentials,  of  contracts,  204 

of  notes,  227 
Estates  in  real  property,  82 
Exchange,  61 


Factors,  16 
Farm  lease,  268 
Fidelity  insurance,  71 
Fire  insurance,  68 
Fixtures,  81 
Formal  contract,  201 
Forms,  see  the  various  titles 
Fraud,  5  (2) 

statute  of,  5  (5) 
Freight,  39 
Freightage,  42 

G 

General  average,  43 
Good  faith  of  agent,  14 


Goods,  in  transit,  282 

sale  of,  16,  278 
Grant,  87 
Grantee,  87 
Guarantee,  87 
Guarantor,  70 
Guaranty,  70 

H 

Heading  of  contract,  205,  207 
Hiring,  32-34 

of  property,  33-34 
Holder  in  due  course,  77 


Implied  warranty,  49 
ImpossibiUty    of    performance, 

8(5) 
Incorporation,  act  of,  92,  225 
Incumbrances,  87 
Indemnity  of  agent,  13 
Indorser,  76  (4) 
Indorsement,  76 
Infancy,  5 
Injxmction,  9 
Innkeeper,  27 
Insolvency  of  buyer,  282 
Insurable  interest,  60 
Insurance,  58-71 
Interest,  31 
Invitation  to  bid,  203 


Jettison,  43 

Joint,  debtors,  8  (3) 

notes,  231 
Judgment  note,  233 

K 

Knowledge  of  defects,  29 


242 


INDEX 


Lading,  bill  of,  260 
Land,  81,  254 

contracts,  255 
Landlord  and  tenant,  34 
Landmarks,  ancient,  84 
Lease,  268 

assignment,  270 
Lessee,  254 
Lessor,  34 
Letters,  offers,  203 

circular,  203 
Liability,  of  agent,  14 

of  principal,  13 

of  sub-agent,  15 
Lien,  for  freightage,  43 
Limitations,  statute,  10 
Liquidation  of  partnership,   56 

(6) 
Loans,  2&-31 
Lodging  house,  34 
Loss, 

abandonment  for,  67  (4) 

notice,  66 


M 

Marine  carriers,  40 

insurance,  67 
Master  and  servant,  21 

of  ships,  16 
Maturity  of  paper,  78 
Measure  of  damages,  9 
Merger  of  contracts,  8  (6) 
Messages,  44 
Minors,  5 

agents  for,  5 
Mistake,  5  (2) 
Moratorium  act,  10 
Mortgages,  89,  261 


Mortgages,  assignment  of,  263 
Mutual  assent,  7 

N 

Necessaries,  5 

Negotiable  contracts,  227-253 

bonds,  237 

documents  of  title,  250,  253 

essentials  of,  227 
Negotiable  paper,  72-80 

kinds  of,  73 

warehouse  receipts,  28 
Non-negotiable     contracts,     7, 
253 

may  be  assigned,  7 

warehouse  receipts,  253 
Notes,  72  et  seq. 

demand,  230 

negotiable,  73,  228 
Notice,  of  agent,  13 

of  dishonor  of  paper,  284 

of  dissolution,  288 

of  loss,  66 

to  stop  goods,  282 

to  tenant,  34 
Novation,  8  (3) 

O 

Object  of  contract,  5 
Obhgations,  2 

of  agent,  14 

of  maker  of  note,  76 

of  owner  of  land,  84 
Offer  and  acceptance,  5 

in  contracts,  203 

rules  of,  203 

counter  offer,  205 
Operation  of  contract,  7 
Oral  contract,  203 


INDEX 


^43 


Ostensible  agency,  12 
authority  of,  12 


Part  performance,  8 
Partners,  54,  56 

law,  220 
Partnership,  52-57 

dissolution  of,  288 

farm,  220 

trading,  220 
Payee,  73 
Pa5Tnent,  8 
Performance,  8 

of  contract,  8 
Perils  of  sea,  40 

insured  against,  58 
Personal,  property,  33 

service,  7 
Policy  of  insurance,  61 
Power  of  attorney,  12,  276 
Premium,  62 
Presentment,  76 

for  payment,  76 
Principal,  11 

debtor,  71 

fictitious,  14 
Promissory  note,  73 
Property,  7,  81 

partnership,  53 

real,  267 
Proxy, 

form  of,  278 

voting  by,  93,  278 
Public  warehouses,  252 

Q 

Qualified  indorsement,  76 
Quitclaim  deed,  266 
form  of,  259 


R 

Ratification,  12 

Real  property,  81-90,  254 

title  to,  254 

lease  of,  267 
Receipts,  warehouse,  252 
Release,  of  debt,  8 

of  mortgage,  265 
Relief  act,  10 
Remedies  for  breach,  9 
Rent,  34 
Rental,  267 
Rescission,  8 
Rough  draft  of  contract,  217 

S 

Sales,  8,  16,  45 

bill  of,  278 

of  land,  254 
Seal,  201 

effect  of,  5  (3) 
Sealed  instrument,  201 
Seller,  warranty  of  title  by,  278 
Signatures  by  agent,  209,  231 
Simple  contracts,  201 
Soldiers'  relief  act,  10 
Statute  of  Frauds,  46,  254 
Stockholders,  95 

voting  by  proxy,  278 
Stoppage  of  goods  in  transit,  282 
Subscription,  name,  205 

shares  of  stock,  224 
Surety,  suretyship,  71,  233 


Taxes,  87 
Title, 

dociunents  of,  250 

to  land,  85 
Trade-name,  56  (6) 


244  INDEX 

tj  deeds,  256 

covenants  in,  257 
Underwriter,  205  Written  contracts,  202 

parts  of,  205 

W 

Warehouse  receipts,  28,  252  Y 

Warehousemen,  39,  252,  282 

Warranty,  49  Years,  estates  for,  83 


UC  SOUTHERN  REGIONAL  LIBRARY  FAaUTY 


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